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PRINCIPLES 



OF 



Political Economy 



BY 



CHARLES GIDE, 

PseOFESSOR OF Political Economy in the University o» 

MONTPELLIER, FRANCE. 



TRANSLATED BY 

EDWARD PERCY JACOBSEN 

(Formerly of University College, London). 



Mitl^ an Introbuttbn anb IJfotts 
By JAMES BONAR, MA., LL.D. 



BOSTON, U.S.A. : 

D. C. HEATH & CO., PUBLISHERS. 

1898. 



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4826ft 



PYRIGHT, 189I, 

By d. c. heath & CO. 




TyPOGRAPHY BY J. S. CuSHING & Co., BoSTON, U.S.A. 

Presswork by Berwick & Smith, Boston, U.S.A. 



INTRODUCTION. 



American and English readers will welcome the translation of 
Professor Gide's book. It is neither a primer for beginners, nor 
a dissertation for the learned, but a guide-book for serious students 
who have mastered the economical alphabet, and are feeling their 
way to a judgment of their own on economical subjects. Its place 
in French economic literature is almost unique. It is helping 
many a young Frenchman to turn his attention to economic 
theory, and to study it in the light of the latest discussions. 
Professor Gide has Adam Smith's faculty of making his readers 
think for themselves, and accept no conclusion without following 
out the process that leads to it. He lays a just emphasis on the 
need of impartiality and freedom from prejudice. In a book 
written for real students of a subject, the truth should be told 
without reserve or fear of consequences. 

Economists familiar with recent investigations (Continental, 
American, and English) of the doctrines of Value, Wages, Foreign 
Trade, etc., will not always agree with the views presented in this 
volume. Students will do well to supplement its somewhat scanty 
references to current economic Hterature by such a bibliography 
as that which is given by Professor E. B. Andrews in his Institutes 
of Economics (Boston, 1889). 

It will be observed that the schools of modern economists are 
(in the beginning of the book) so classified that our author re- 



in 



IV INTRODUCTION. 

mains outside of them. His position, however, is substantially 

that of the First or " Classical School," if we substitute evolution 

and social union (" solidarity ") for finality and individualism. 

Like the Classical School, he recognizes the need of Theory and 

(to that end) of iVbstraction ; and the theoretical work of the 

Classical School is in great part the foundation of his own new 

building. 

PoHtical Economy in the hands of Professor Gide is neither 

dismal in its conclusions, nor dull in its deliberations. Though 

these may be counted adventitious attractions, they will be keenly 

appreciated by most of his readers. In point of style, our author 

has few rivals, even in France. 

JAMES BONAR. 
Hampstead, London, 
14th March, 1891. 



AUTHOR'S PREFACE TO THE THIRD 
[FRENCH] EDITION. 



When the first edition of this work appeared in 1883, 1 refrained 
from prefixing any prefatory note, for I thought it wiser for the 
book to introduce itself to the pubHc. In the second edition I 
somewhat sharply replied to some severe criticisms which had 
been directed against the tendency of the treatise. In the preface 
to this new edition complaints are out of the question ; all that I 
can do is to thank the public for the favorable manner in which 
the book has been received both in France and abroad. 

I have endeavored to acknowledge this kind reception by cor- 
recting and supplementing, to the best of my powers, the weak 
points and deficiencies which have been brought before my notice. 
However, there is a criticism of a general nature which has 
reached me from various quarters and has proceeded from friends 
as well as from adversaries ; to this I must devote a few words oi 
explanation unless I wish to incur the charge of neglecting it. 
The complaint is, that in treating each question I have set forth the 
various competing systems without expressing my own opinions in 
a sufficiently decided manner ; I am, therefore, charged with leaving 
students to wander in a state of unpleasant uncertainty, and with 
consequently failing to discharge in full measure the duties of a pro- 
fessor who is entrusted with the care of the minds of the young. 

My reply is, that this book is not intended for scholars in pri- 
mary schools or for use in secondary education. Nor is it addressed 
exclusively to students of the universities ; its object is also to 
reach practical men who wish to form for themselves an opinion 
on economic and social questions j I repeat, men who wish to 

Y 



vi author's preface to the third edition. 

form an opinion "for themselves," and are not content with re- 
ceiving one ready-made from the teacher's Hps. My method may 
sometimes leave the reader in a state of hesitation and suspended, 
as it were, in a species of mental balancing which is wont to lull 
to sleep minds of a sluggish nature ; but I am confident that it 
will be profitable to those who are eager for the discovery of truth 
and do not wish to have opinions forced upon them. Further, 
I have not shrunk from pronouncing an outspoken judgment 
on all questions in which the truth seems to be beyond contro- 
versy ; in all cases in which doubt is possible, — a class of ques- 
tions which unfortunately is far more extensive, — I have striven 
to maintain an equal balance, but, nevertheless, have not neglected 
to throw in that grain of sand which, for the keen observer's eye, 
is enough to turn the scale. 

Perhaps I may also be allowed to remark, that the excess of 
impartiality for which I am taken to task has not been the char- 
acteristic feature of treatises on political economy which have been 
hitherto published in France. For several generations these books 
had been in the habit of presenting political economy in only one 
light, — the point of view of the " Liberal " school. There is, then, 
no reason to murmur if later treatises should break with a tradi- 
tion which was beginning to assume the shape of a law, should 
restore their rightful place to doctrines which have heretofore 
been proscribed, and should give their due share of justice even 
to notions which do not command our assent ; for thus can be 
applied Shakespeare's admirable maxim, — 

" There is some soul of goodness in things evil, 
Would men observingly distil it out." 

— Henry V, act iv, scene i. 

CHARLES GIDE. 



AMERICAN INTRODUCTION. 



Science is international ; it suffers when the natural relation 
between different countries is interrupted, and gains when the 
connection is resumed. The publication in America of a treatise 
on Economics written in France, and translated in England, means 
the re-establishment of an intellectual commerce that has been 
partly under an embargo. The orthodoxy of many French econ- 
omists, and the impulse to enlist under new school or historical 
standards, which lately showed itself in America, had the effect of 
isolating these two countries from each other ; while between the 
American school and the English school of a few years ago, a 
similar though less complete separation had taken place. Between 
England and America an active interchange of thought has since 
been established. 

In addition to the benefit to be derived from a closer scientific 
relation to France, there are specific gains to be expected from 
the use of Professor Gide's treatise by American students. Its 
progressive spirit will make it everywhere welcome, and its appreci- 
ative attitude toward the older schools of thought will, at the same 
time, make it everywhere useful. It carefully retains the best fruits 
of early work ; the " new departure " that it represents is one that 
does not break with the past. Its conspicuous quality is a wisdom 
that is not often combined with so much of brilliancy. 

Mr. Jacobsen has been very successful in preserving in his trans- 
lation the literary quality of the original work. 

J. B. CLARK. 

Northampton, Mass., 
March 20, 1891. 



vu 



TABLE OF CONTENTS. 



GENERAL NOTIONS. 

PAGB 

I. The object of political economy ,' . . . i 

II. On method in political economy « 4 

III. Whether there are natural laws in political economy 9 

IV. The four economic schools , . . . , 15 



Book I. 

WEALTH AND VALUE. 



Chapter I. — Wealth. 

I. The desire for wealth 31 

II. The wants of man 34 

III. The definition of wealth 38 

Chapter II. — Value. 

I. What is value ? 44 

II. What is the cause of value ? 47 

III. Critical examination of the various theories of value. 54 

IV. Variations in value 60 

V. The effects produced on value by competition 64 

VI. Whether competition is cheapness 68 

Chapter III. — Price. 

I. How value is measured by exchange o 72 

II. On the choice of a common measure of values « 74 

III. What is price? 82 

IV. Whether the measure of value be not an insoluble problem 84 

V. Whether money should be reckoned as wealth 88 

ix 



X TABLE OF CONTENTS. 

Book II. 

PRODUCTION. 
Part I. — The Conditions of Individual Production. 

THE FACTORS OF PRODUCTION. 

Chapter I. — Nature. page 

I. The environment 96 

II. The ground 99 

III. The raw material loi 

IV. Motive forces 103 

Chapter II. — Labor. 

I. On the part played in production b^ labor 108 

11. How labor produces ill 

III. What kinds of labor should be called productive? 113 

IV. On pain as a factor of labor 118 

V. On time as a factor of labor I2I 

Chapter III. — Capital. 

I. On the part played in production by capital 125 

II. The meaning of the productivity of capital 1 27 

III. The distinction between wealth which is capital and wealth which 

is not 1 30 

IV. The durability of fixed and of circulating capital 135 

V. How capital is formed 138 

Part II. — The Social Conditions of Production. 

the social organism. 

Chapter I. — Association. 

I. The various forms of association 145 

II. The advantages and disadvantages of large production 150 

III. Whether large production shovild be extended to agriculture 154 

Chapter II. — Division of Labor. 

I, The different forms of division of labor 158 

II. The advantages and the disadvantages of division of labor 161 

III. Liberty of labor 166 



TABLE OF CONTENTS. XI 



Chapter III. — Exchange. 



PAGE 



I. On the pdrt played in production by exchange 169 

II. The advantages of exchange 1 72 

III. On the means of facihtating exchange 1 74 

IV. On the part played in production by traders 1^4 

V. The disadvantages of the multiplication of traders 1 76 

VI. Means of transport i yo 

VII. The breaking-up of barter into sale and purchase 182 

Chapter IV. — Metallic Money. 

I. Why the precious metals have been chosen as the instrument of 

exchange 186 

II. The invention of coined money 188 

III. The conditions to be fulfilled by all good money 190 

IV. Gresham's law 194 



the question of monometallism and bimetallism. 

I. The necessity of taking several metals, and the resulting difficulties 198 

II. How it is that bimetallist countries really have but one money. . . 202 

III. Whether it is advisable to adopt the monometallist system 207 

IV. Whether the respective value of the two metals could not be fixed 

by an international understanding 2H 

Chapter V. — Paper Money. 

I. Whether metallic money can be replaced by paper money 214 

II. Whether the creation of paper money is equivalent to a creation 

of wealth 219 

III. The dangers resulting from the use of paper money and the means 

of preventing them . . . ., 224 

IV. How even paper money may be dispensed with 228 

V. How the improvements in exchange bring us back to barter 233 

VI. The decadence of the precious metals , 234 

Chapter VI. — International Trade. 

I. Why exaggerated importance is attached to foreign trade ....... 236 

II. Why international trade always tends to take the shape of barter 237 

III. What is meant by the balance of trade 241 

IV. Wherein lie the advantages of international trade 246 



Xll TABLE OF CONTENTS. 

PAGE 

V. Why the advantages of international trade should be measured 

neither by the excess in imports nor by the excess in exports. . 248 
VI. How it happens that international trade necessarily harms certain 

interests , 250 

THE QUESTION OF FREE TRADE AND PROTECTION. 

I. Why the question of free trade is a question 252 

II. The protectionist system 256 

III. Whether the dangers feared by the protectionist theory are real. . 260 

IV. On the disadvantages of protective duties 264 

V. Why the bounty system is preferable 269 

VI. On some moderate forms of protection 270 

Chapter VII. — Credit. 

I. Credit operations 272 

II. Credit papers 275 

III. Whether credit can create capital 277 

IV. Banks 280 

V. Deposits 281 

VI. Discount 283 

VII. On the issuing of bank notes 286 

VIII. The differences between the bank note and paper money 290 

IX. The rate of exchange ; 292 

X. The raising of the rate of discount 299 

XI. Some special forms of credit .^ 303 

the question of monopoly OR OF liberty of banking. 

I. On monopoly or competition in the issuing of notes 309 

II. As to liberty or regulation in the issuing of notes 313 

Part III. — The Equilibrium between Production and 

Consumption. 

Chapter I. — Insufficiency in Production. 

I. The increase of population ; the laws of Malthus 320 

II. On the limitation of production in agriculture, and the law of 

decreasing returns 323 

III. On the limitation of production in other industries 328 

IV. How limitation of production affects prices , 330 



TABLE OF CONTENTS. xiii 



PAGB 

Chapter II. — Excess in Production. 

I. How to maintain the equilibrium between production and con- 
sumption -y^A 

II. Crises ^ 036 

III. Is there reason to fear too much production? 341 

Chapter III. — Progress in Production. 

I. Current illusions as to economic progress 345 

II. The disadvantages necessarily involved in all progress in pro- 
duction , , 348 

III. The question of machinery , 351 

IV. The future of production , , 356 



Book III. 

CONSUMPTION. 

How Wealth can be Employed. 

Chapter I. — Expenditure. 

I. What should be our conception of expenditure? 361 

II. How it happens that expenditure regulates but does not feed 

production 364 

III. The real aims of expenditure 366 

IV. Luxury 369 

V. The expenditure of foreigners 373 

VI. The means of reducing expenditure 376 

Chapter II. — Saving. 

I. What should be our conception of saving? 379 

II. The conditions necessary for saving 382 

III. Institutions for the facilitation of saving 386 

Chapter III. — Investing. 

I. What should be our conception of investing? 390 

II. The conditions necessary for investing 395 



XIV TABLE OF CONTENTS. 

Book IV. 

DISTRIBUTION. 

Part I. — The Various Principles of Distribution. 

Chapter I, — The Social Problem. page 

I. Is there a social question ? 398 

II. The inequaUty of wealth 401 

III. Why the problem of distribution is so hard to solve 406 

Chapter II. — The Socialist Solution. 

I. Communism j . 410 

II. Collectivism 414 

III. The different formulae for the division of wealth 418 

IV. Why there is no solution 428 

Chapter III. — The Rights of Property. 

I. The origin of the rights of property 430 

II. What are the attributes of the rights of property? 431 

III. Over what things should the right of property extend? 438 

IV. The historical evolution of landed property 445 

V. The legitimacy of landed property 451 

VI. The law of ground rent 455 

VII. The nationalization of the land 461 

VIII. The organization of landed property 464 

Part II. — The Various Classes of Sharers. 

Chapter I. — The Autonomous Producer. 

I, Why this condition is the most favorable for a fair distribution of 

wealth 473 

Chapter II. — The Master. 

I. The part played by the master, and the legitimacy of profits 477 

II. The laws which regulate profits 482 

III. Whether the rate of profits is in inverse ratio to the rate of wages 486 

Chapter III. — The Wages-earner. 

I. The contract of wages 489 

II. The laws which regulate the rate of wages 492 



TABLE OF CONTENTS. XV 

FACE 

III. The rise in wages 503 

IV. Whether there are any means of improving the condition of the 

wages-earners 5°^ 

V. Strikes 509 

VI. State interference 512 

VII. Co-operation , , 5 ^^9 

Chapter IV. — The Man who Lives on his Income. 

I. The right to be idle 526 

II. The rent of land 529 

III. House-rent 532 

IV. Interest 535 

V. Does the rate of interest tend to fall? 539 

Chapter V. — The Indigent. 

I. The right to relief 543 

II. The organization of public relief. 547 

III. Is pauperism on the increase ? 55^ 

Appendix. — The Public Finances of France. 

I. Public expenditure 554 

II. The public revenue 559 

III. The public debt 570 



PRINCIPLES OF POLITICAL ECONOMY. 



GENERAL NOTIONS. 

I. THE OBJECT OF POLITICAL ECONOMY. 

It may appear strange, at the beginning of a treatise on political 
economy which is perhaps the hundredth which has been written 
on the subject, to declare that a precise definition of political 
economy has still to be found. 

Such, however, is the truth ; and after all, there is nothing very 
surprising about it. No science can be clearly defined until it has 
been finished and till the neighboring sciences are so also. Now, 
such is not the case with the science which is occupying our 
attention ; on the contrary, like the other social sciences, it is a 
science in process of formation. Just as in a still "unexplored 
land, the traveller cannot mark out on the map the exact frontiers 
of each district, but must confine himself to indicating more or 
less approximately the great dividing lines which he perceives 
or guesses at, 'so here, too, "we must be contented with pointing 
out as accurately as we can the domain of political economy, 
without venturing to mark it ofi" very clearly from the territory of 
the other social sciences. 

Without, then, seeking at present a precision that would be 
useless, we may say, in harmony with most writers, that political 
economy is the science of wealth. Although the word " wealth " 
of itself greatly needs definition, yet it sharply suggests to the 
mind the essential facts with which our science deals, and there- 



2 PRINCIPLES OF POLITICAL ECONOMY. 

fore frees us from a recourse to long circumlocutions ; still we must 
not be led astray by the circumstance that political economy deals 
with wealth, that is to say, with things, res, nor be tempted thereby 
to class it among the natural sciences which study bodies. Wealth, 
as we snail see, is created by the needs of men living in society, 
and consequently the study of wealth is nothing but the study of 
" man " under one of his most characteristic aspects. 

Three questions have always occupied the thoughts of men : 
"How can wealth be produced? " " What use should be made ot 
it?" "In what manner should it be divided?" The several an- 
swers to each of these questions constitute one of the great divisions 
of political economy ; viz., production, consumptioti, and distribu- 
tion. In works on political economy, almost without exception, a 
fourth division is added, viz., circulation ; but we must confess that 
we have never been able to understand what the term answered and 
referred to. For the circulation of wealth, i.e. the transferring 
of commodities from hand to hand, is, as will be seen, nothing 
but a consequence and a form of division of labor. It is there- 
fore irrational to detach this section from the department of pro- 
duction in order to make it into a distinct branch. The fact that 
wealth may be transferred from hand to hand is a circumstance 
which is valueless in itself, and its only worth lies in the measure 
in which it -contributes to social production. 

It is clear that the three questions which constitute the pith 
of political economy are essentially practical ones, and it seems to 
follow that the science whose object it is to supply an answer 
to these questions should itself be of a practical nature ; in other 
words, be an art rather than a science. Indeed, it was under this 
aspect as an art, or say a practical study pursuing a definite aim, 
namely, national prosperity, that political economy was always 
regarded by the ancients. This, too, is shown by the etymology 
of the word (ot/co? = the house, vo/xos = government, ttoAis = the 
city), and Adam Smith, the father of the science, adhered to this 
definition. 

But the human mind, which is always curious to learn the 



GENERAL NOTIONS. 3 

reason of things, has gone on to ask a further question : " What is 
Wealth?" But this differs from the three earher questions by 
possessing a purely speculative character ; its object is to deter- 
mine the causes which render wealth desirable, to discover the 
necessary relations between different kinds of wealth ; in other 
words, to formulate the laws of value and of price. To the 
answering of this branch of questions we purpose to devote a 
fourth division ; but to comply with the necessities of logic this 
must be our first part, and should be regarded as the purely 
theoretical side of political economy. 

In most works on political economy, value is merely dealt with 
as a portion of exchange, but that presents it in a far too narrow 
light. The notion of value is really the basis of all political 
economy ; and not only exchange, but distribution, consumption, 
and production likewise become united, from a strictly scientific 
as well as from a practical point of view, when questions of value 
are discussed. It is logical, then, to give value a branch to itself, 
unless, indeed, we are willing to scatter it through all the other 
divisionso In fine, works on pure political economy are in reality 
nothing but treatises on value. 

Political economy is not the only science which treats of the 
relations between men and things or of the relations of men 
inter se ; Laiv and Morals share in this study. These three 
great social sciences have the same object, at least for a part 
of their work ; though, no doubt, they view it under three differ- 
ent aspects. The economist is concerned merely with the wants 
of men, the lawyer with his rights, the moralist with his duties. 
But on questions of succession, property, credit, on the contract of 
loans and of wages, the lawyer and the economist are compelled 
to join hands, just as the economist and the moralist have to meet 
on the questions of luxury or poverty and many others. This is a 
happy meeting and is of great benefit to all three sciences. Our 
virtual separation of them follows less from the necessities of logic 
than from that weakness of human understanding which debars 
us from comprehending so vast a domain at one and the same 



4 PRINCIPLES OF POLITICAL ECONOMY. 

glance. Still it is to be hoped that there may be a daily increase 
in their blending and joint study. 

Years ago Auguste Comte laid down " that every study isolated 
from its various social elements was, from the very nature of the 
science, compelled to be essentially sterile, after the example of 
political economy y For he conceived the idea, which constitutes 
his chief title to fame, of the regulation of all social phenomena 
by a separate science which he called sociology. All workers at 
sociology, whether they be of the school of Comte or of the school 
of Herbert Spencer, apply their main efforts to the formation 
of a huge synthesis of all the social sciences ; but the field is so 
vast that it is easy to miss the right road„ 

II. ON METHOD IN POLITICAL ECONOMY. 

In scientific language the term " method " is used to mean the 
road that must be followed for the discovery of truth. Now there 
are several roads, and the question as to which road should be 
chosen has in recent years aroused a great controversy. 

The classical school of economics, of which Ricardo is the most 
illustrious representative, used to employ the deductive method, — 
a method which starts from certain general principles that are 
regarded as indisputable, and proceeds thence by way of logical 
consequence to deduce an indefinite series of propositions. 
Geometry (or even theology) may be taken as the type of the 
sciences that employ the deductive method. Law students will 
readily recognize that Law itself, particularly Roman Law, employs 
the deductive method ; for the jurisconsult, starting from a few 
principles laid down by the Twelve Tables, or found in theyV/j- 
gentium, proceeded to construct that huge monument of learning 
that we call the Pandects. In economic science the deductive 
school started from the principle (named hedonistic) " that man 
always desires to obtain the maximum of satisfaction with the 
minimum of pain," and thence deduced a series of propositions 
which still constitute the framework of economic science. 



GENERAL NOTIONS. 



5 



The new school rejects this mode of reasoning ; it asserts that 
in social science, and in the physical or natural sciences likewise, 
the inductive method is the only one to employ : this method 
starts from the observation of certain particular facts in order to 
rise to the height of general propositions ; for example, from the 
fact that all bodies fall, to the law of gravity. In economics this 
method will be shown in the individual and accumulated obser- 
vation of ah social facts as they are revealed to us, in their present 
state by means of statistics or by information suppHed by travellers, 
in their past state by history. Thus we shall be able to slowly raise 
the edifice of economic science, which will then be the true science, 
not like that artificial science (so says the new school) which the 
deductive school constructed in cut and dried fashion. 

Both of these methods are too absolute ; but truth is never 
reached by so perfectly straight a road. The real method of 
political economy proceeds by three stages : 

First. By the observation of facts without any preconceived 
notion, even those which at first sight appear to be the most trivial. 

Second. By the imagination of a general explanation which will 
enable us to establish mutual relations between certain groups of 
facts j i.e. by the forming of an hypothesis. 

Third. By the verification of the validity of this hypothesis, by 
seeking, by the aid of experiment if possible, at any rate by 
specially directed observations, to discover whether it exactly cor- 
responds with the facts. ... Of course it is not necessary for 
the same men of science to make observations, form hypotheses, 
and verify them ; for the gifts of observation and of imagination 
are somewhat rarely combined in the same person. 

The above has been the procedure adopted in all sciences. All 
those great laws which constitute the bases of modern sciences, 
beginning with Newton's Law of Gravity, are only verified 
hypotheses ; and we must add that the great theories which are 
the groundwork of scientific research, e.g. the existence of ether in 
physics, or the theory of evolution in natural science, are merely 
hypotheses which require verification. Proof of this may be found 



6 PRINCIPLES OF POLITICAL ECONOMY. 

in Claude Bernard's Introduction a V Etude de la Medecine ExperU 
meniale and in M. Naville's La Logique de V Hypothese. 

As Stanley Jevons has observed in his Principles of Science ^ the 
method employed for obtaining the discovery of truth in the 
sciences is similar to that unconsciously made use of by those who 
try to find the meaning of those rebuses or ciphers to be met with 
on the back page of some illustrated papers. In order to guess 
what the meaning of this enigma may be, we imagine some mean- 
ing or other. Then we observe whether this really agrees with the 
figures or images before us ; if it does not, it is an hypothesis to 
be rejected. We then conceive another one, and so forth, until 
we obtain a more successful result, or lose courage altogether. 
We shall find nothing in facts unless we have previously in our 
minds an image or a forecast of the truth. 

The new school, then, is wholly in the right when it blames the 
classical school for its dogmatic attitude and for its tendency to 
believe that the principles, at which it has arrived by reasoning, 
are the exact expression of what is and of what ought to be. But 
this school, in its turn, commits no less serious an error in believ- 
ing that the attentive observation of facts is of itself sufficient to 
establish the science of economics, and that we may therefore for 
the future dispense with any resort to abstraction, hypothesis, and 
the " let us suppose " so dear to the school of Ricardo and so 
obnoxious to the school now under mention. 

The facts presented to us by nature are too numerous, too 
complex, too interlaced ; and in economics especially, they form 
too inextricable a labyrinth for us ever to be able to discover our 
whereabouts, unless reason or imagination comes to our aid and 
throws light upon the darkness and forms order out of the chaos. 
It is true enough that the generalizations of the classical school 
to which, too ambitiously, perhaps, has been given the name of 
"laws" (for instance, those associated with Ricardo and with Mal- 
thus), are for the most part only hypotheses to be verified or to 
be rejected. But, such as they are, they have rendered eminent 
service to the science of economics, and it would be ungrateful 



GENERAL NOTIONS. 7 

to disown them, even though they may come to be regarded not 
as the framework of poUtical economy, but only as the scaffolding 
used during the construction of buildings, and destined to be 
taken down as soon as the work is completed. 

Latterly, however, a new deductive school has arisen, which, in 
spite of adhering faithfully to the reasoning method, and even 
pushing it to the extreme, as is shown by its preferring to employ 
mathematical language, has been wary enough not to be ensnared 
by its own speculations, as was the case with the former deductive 
school. This newer deductive school presents its abstractions 
purely as what they are ; that is to say, as hypotheses intended to 
illuminate facts and guide observation. 

In his Elements d'' Economie politique pure, M. Walras of Lau- 
sanne writes : " Pure political economy is essentially the theory of 
the determination of prices under a hypothetical regulation of ab- 
solutely free competition." To this may be added a dictum of 
Signor Pantaleoni in his Principii di Ecojiomia pura : " Whether 
the hedonistic and psychological hypothesis (that of the maximum 
of pleasure with the minimum of effort), whence all economic 
truths are deduced, coincides or fails to coincide with the motives 
which actually determine men's actions, is a question which in 
nowise detracts from the accuracy of truths deduced therefrom." 

In point of method there is one great difference between the 
economic and the natural sciences ; in economics it is very diffi- 
cult and often impossible to employ experiment, and therefore 
hypotheses may remain in suspense for an indefinitely long period, 
for want of any suitable rheans of verification. The chemist, the 
physicist, and even the biologist, though the last experiences 
greater difficulties, can always place the fact which they wish to 
study under certain artificially determined conditions which they 
can vary at will. 

For instance, in order to study the respiration of an animal, 
they can place it under the bell-jar of a pneumatic machine, and 
alter the pressure of the air according to their requirements. This 
power is never possible to the economist, even though lie be 



8 PRINCIPLES OF POLITICAL ECONOMY. 

joined by a lawgiver or an omnipotent despot. In social matters 
we are obliged to study facts as they are presented to us, without 
being able to isolate them from the web of connected facts in 
which they are implicated. We cannot put a country under a 
bell-jar; and even if we could, that would not be enough to 
enable us to draw any certain conclusions. 

Let us suppose that in order to study the effects produced by 
free trade, we could take two countries, and subject one to an 
absolute regime of free trade, the other to a protectionist system ; 
and find, at the end of ten years, that the former had greatly 
increased in wealth, whereas the latter had become ruined. No 
doubt this would be valuable information for us to gain ; but still, 
even under the extraordinarily favorable, and moreover, altogether 
imaginary, circumstances that I have supposed, the experiment 
would not be a decisive one. For the various destinies of different 
countries can be explained by far other causes than differences in 
their commercial systems ; to wit : differences in environment, 
in race, in legislation, in individual energy. 

Take the two Australian colonies of New South Wales and of 
Victoria ; though both of them are of the same race and in the 
same environment, the first is free-trading, the second is protec- 
tionist. Although this experiment has already lasted for a long 
time, are we to think that the question of free trade has yet 
been solved? By no means ! Adhuc sub judice Us est. 

Instead, therefore, of being able to make direct social experi- 
ments, we are obliged to wait for what chance may supply us 
with in certain particular circumstances, such as the application 
of a new method of legislation, the foundation of a socialist com- 
munity, a pathological crisis in an existing society ; and even then 
this indirect mode of experimentation would but very rarely lead 
us to any definite conclusions. 

We must not then be astonished, as people too often are, if the 
science of economics takes far longer to construct than was the 
case with the physical or natural sciences. Nay ! the reverse 
rather would have caused surprise ; for on the one hand the 



GENERAL NOTIONS. 9 

observation of facts is in this study more difficult than it is else- 
where ; and, 'on the other hand, the most powerful means for 
reading between the lines of facts (the auxiliary that has enabled 
the other sciences to make such marvellous and so rapid prog- 
ress\ I mean experiment, now deserts us. A further reason 
this, for not absolutely rejecting the employment of the abstract 
method. 

In truth, the observation of economic and social facts is a task 
which is infinitely above all individual effort. It could only be the 
collective work of thousands of men putting their observations 
together, or of governments themselves, using for this purpose the 
powerful means of investigation which they have at their disposal. 
If there is one simple and elementary fact among all the facts which 
have any connection with the social sciences, it is surely that of 
the number of persons composing a society. Yet it is clear that 
an isolated observer is absolutely powerless to determine this 
matter. Governments alone can undertake this task, and even 
then it is only quite recently that official returns have attained a 
moderate degree of accuracy. 

To take another example. In 1879 the French National Soci- 
ety of Agriculture wished to make an inquiry into the question 
whether the division of property had increased or diminished. 
Can a simpler question be imagined ? Yet the result of this inquiry 
(as reported by M. Leroy-Beaulieu in his book on La Repartition 
des richesses) was that out of Z^ correspondents, 38 replied that 
the division of property had increased, 4 that it had diminished, 
21 that it had remained unchanged, and 25 made no reply at all, 
probably because they knew nothing at all about it. 



III. WHETHER THERE ARE NATURAL LAWS IN 
POLITICAL ECONOMY. 

When we grant to any branch of human knowledge the name of 
science, our object is not the simple bestowal on it of an honorary 
title ; the assertion we make is, that the facts studied by thi? 



lO PRINCIPLES OF POLITICAL ECONOMY. 

" science " are naturally connected with one another in a regular 
order ; in other words, that they are subject to laws. 

In some domains the order of phenomena is so obvious that 
such a state of things has compelled remark even from the minds 
v;hich are least accustomed to scientific speculations. A mere 
lifting of the eyes skywards is enough to establish the regularity of 
the nightly progress of the stars, of the monthly succession of the 
phases of the moon, of the yearly journey of the sun through the 
constellations. In the most remote days of history, shepherds 
watching their flocks, sailors steering their vessels, had already 
recognized the periodical nature of these movements, and herein 
were laid the foundations of a true science, the oldest of all 
sciences, — astronomy. 

The phenomena which are manifested in the constitution of 
organized bodies and dead matter are not as simple, and the order 
of their co-existence or succession is not as easy to comprehend. 
Many centuries, therefore, had to elapse before the human mind, 
lost in the labyrinth of things, succeeded in laying hold of the 
guiding thread, in finding at length order and law in these facts 
themselves, and in forming out of them the sciences of physics, 
chemistry, and biology. 

Little by little this idea of a constant order among phenomena 
has penetrated into all domains, even into those which at first sight 
seemed destined to remain forever closed to it. Even those 
winds and waves, which poets had from time immemorial made 
the emblem of inconstancy and caprice, have in their turn come 
to recognize the empire of this new power. At least the great 
laws have been established, which direct, through the atmosphere 
or across the oceans, the aerial or the maritime currents. , And 
meteorology, or the physics of the globe, has in its turn established 
its foundations. Even the chances of wagers, the combinations 
of dice — there is none, even of these, which has not been sub- 
jected to the calculation of probabilities. Hazard, even, hence- 
forward has its laws. 

The day, too^ was to come when thi§ grand idea of a natural 



GENERAL NOTIONS. II 

order in things, after having step by step, in the guise of a con- 
quering power, invaded all the domains of human knowledge, 
would at length penetrate the region of social facts. To the 
French school of Physiocrats falls the distinction of having first 
recognized and proclaimed the existence of this natural govern- 
ment of things ; thence, in truth, is derived the name of their 
school, from two Greek words which mean " government of 
nature." For this reason they might be said to have earned the 
title of founders of economic science, had they not been too greatly 
eclipsed by the glory of Adam Smith. '' Human society," said 
Quesnay, "is a necessary fact, governed by providential laws. 
The mission of government is not to make laws, but to declare 
and proclaim natural laws, and make their observance sure." 

In the present century, especially, following in the wake of 
Auguste Comte and Herbert Spencer, nearly all the great schools, 
positivist, evolutionist, historical, even socialistic, have teemed 
with opinions of this character; all of them, in greater or less 
degree, regard human societies as organisms, which are bom and 
developed according to laws precisely analogous with those bio- 
logical laws which govern the evolution of all living creatures. 
Still, it cannot yet be said that this notion of natural laws in 
economics is unanimously accepted. It conflicts, in fact, with no 
small difficulty; economic facts are human acts, and therefore 
voluntary acts, and as being such can scarcely be conceived as 
falling under the rule of inevitable laws. However, there is no 
insurmountable contradiction in the case. 

If an inevitable contradiction is customarily found (or supposed) 
to exist between the idea of liberty and the idea of natural law, 
that arises from our not understanding the latter expression in its 
real sense : natural law is represented under the shape of civil 
law or penal law ; that is to say, as a power holding a sword in its 
hand, which insists on being obeyed, willy nilly. Nothing could 
be more false than this conception. Natural law is only the 
expression of a constant relation which has been established 
between certain phenomena, and in economics it is nothing but 



12 PRINCIPLES OF POLITICAL ECONOMY. 

the expression of certain constant relations in the acts and pro- 
ceedings of men. 

Now statistics have frequently shown the really surprising regu- 
larity in the recurrence of the most important acts of human life, 
such as marriage ; or of the most trivial, such as posting a letter 
without having addressed it. In economic facts, properly so called, 
this regularity is nd less remarkable. The current of a river, which 
is usually determined by natural laws, is neither more constant nor 
more regular than the movement of a great commercial current, 
such as that of a railway line, and the variations of traffic of the 
latter are surely easier to explain and to forecast than the changes 
of level of the former. 

For an explanation of this regularity which is so strange at 
first sight, it would be sufficient, to begin with, to consider how 
important a part is played in social facts by the involuntary and 
the unwitting ; for instance, the influence, or rather the tyranny, 
exercised over our daily conduct by habit, imitation, and heredity, 
— those three factors which have the common attribute of being 
absolutely independent of our will (see M. Tarde's very inter- 
esting book Les lois de l^ imitation) . 

But, in truth, it is not even necessary for an explanation of this 
phenomenon to restrict the field of human liberty. The regularity 
of economic and social facts is not opposed to liberty ; on the 
contrary, it is the consequence of this liberty when enlightened 
and deliberate. Imagine a world in which all men were absolutely 
free, absolutely wise ; the march of events therein would be cer- 
tainly far more regular even than it is with us. If, on the other 
hand, all men were mad, then, but then only, would disorder and 
chaos be the law of this world, and economic facts would be 
beyond the pale of all rational prediction. 

Kant, the metaphysician of free will, fully admits, however, the 
existence of natural laws in the social sciences. " In whatever 
way free will may be represented in metaphysics, its manifestations 
are in human actions determined, like every other phenomenon, 
by general laws of nature. History, which deals with the recital 



GENERAL NOTIONS, 1 3 

of these manifestations, however deeply their causes be hidden, 
does not abandon one hope ; viz., that in observing the play of free 
will on a large scale it may discover therein a regular movement. 
. . . Thus marriages, births, and deaths do not seem to be 
subject to any rule which would admit of the calculation of their 
number beforehand ; yet the yearly tables drawn up in some great 
countries testify that in this matter as close obedience is paid to 
constant laws as is paid by the variations in the atmosphere, the 
growth of plants, the course of rivers, and the remainder of the 
economy of nature. Individuals, nay, whole peoples, do not in 
the least imagine that though following each of them their own 
bent and often engaging in strife with one another, they are still 
unconsciously obeying, just as the bees and the beavers, the 
design of nature which is unknown to them, and are contributing 
to an evolution, which, even could they be aware of it, would be 
of little matter to them." — Kant, Idea of an Universal History. 
Edition Hartenstein, IV, 143. 

P^-ediction, in fact, is the criterion by which we recognize the 
existence of natural laws, and consequently, too, the character of a 
true science. If, indeed, facts are linked together in a certain 
order, Kke a well-managed procession in which each member 
keeps its place and observes its distances, if there is, to use a 
current phrase, a "march " of events, it should always be possible, 
one fact being given, to foresee what should follow or accompany 
it. In some sciences, on account of their simplicity, this power 
of prediction is so extensively exercised that it stupefies the vulgar 
and assumes the shape of actual prophecy ; for instance, the 
predictions of astronomy. In the physical and natural sciences 
prediction rarely cleaves the future, but yet in more modest 
measure it enables the chemist, combining two substances in a 
crucible, to say what body will result from this combination and 
what its properties will be ; and by its aid the geologist can state 
the various strata that will be met with in the piercing of a tunnel 
or the sinking of a mine -shaft. The naturalist who sees for the 
first time an unknown animal, even before dissecting, can tell in 



14 PRINCIPLES OF POLITICAL ECONOMY. 

advance, from certain external signs, what organs will meet his 
scalpel, and their order of presentation. Is the economist capable 
of availing himself of a similar faculty of prediction, thanks to his 
scientific pretensions? 

He is, undoubtedly. Of two objects of the same quality but 
of unequal value, he can foretell that the buyer will choose the 
less dear ; or if that instance be too trivial, he can nowadays, 
from various signs, such as the rate of exchange, which is neither 
more nor less certain than the warnings given to the sailor by 
the barometer, observe and foresee the approach of commercial 
crises. We shall have occasion to see other instances. If into 
any country an inferior money be introduced, say paper money, 
the speedy disappearance of the good money can be safely pre- 
dicted (see Greshatft's Law). By the simple sight of the rate of 
exchange one can judge of the financial and commercial condi- 
tion of a country {^^^ Exchange). Stanley Jevons has even es- 
sayed to prove that there is a ten-yearly cycle in commercial 
crises parallel to that shown by astronomical phenomena, to which 
his daring theory strove to relate them (see Cfises). 

We must point out that even those who are the most vehement 
in refusing to economists the possibility of prediction in economic 
questions, do not fail, however, to employ it themselves in their 
ordinary course of life and in the management of their daily busi- 
ness. The financier who buys a share in the Suez Canal or in a 
railway foresees the continuity and the progressive increase of a 
particular traffic in a fixed direction, and his purchase of the share 
at a high rate testifies, whether he will or no, to his firm confi- 
dence in the regularity of one economic law. Every one who 
speculates — and who is there who does not speculate ? — resorts to 
prediction after his own fashion ; this, no doubt, is too often exer- 
cised in a haphazard manner, but it might be used scientifically : 
taking it all in all, the speculator, as far as he is concerned, con- 
siders prediction to be perfectly rational. 

True enough, in this sphere forecasts are, as is sometimes said, 
only approximate ones, and cannot be expected to reach any 



GENERAL NOTIONS. 15 

mathematical precision. But it would be utterly absurd to con- 
clude that, because exact prediction is not possible, therefore there 
are no laws at all ! No one can hold that wind, rain, hail, or 
storms are the result of chance, much less of human will. They 
are certainly ruled by natural laws. Yet forecasts are no more 
exact in this branch than they are in economics, and a commercial 
crisis can be more safely predicted than can a cyclone. 

If our predictions in poHtical economy are always uncertain 
and do not look far in advance, the reason of this must be sought, 
not at all in the non-existence of economic laws or in a sup- 
posed want of order in events, but purely in our ignorance of 
causes, just as m meteorology. Whatever may be one's opinion 
as to free will, it is not doubtful, as John Stuart Mill says, " That 
given the motives which are present to an individual's mmd, and 
likewise the character and disposition of the individual, — if we 
knew the person thoroughly and knew all the inducements which 
are acting upon him, — we could foretell his conduct and the man- 
ner in which he will act." — Logic, VI, ii, sect. 2, page 422. 

Such motives will never be known to us exactly. Luckily, in 
the treatment of economic facts, we have not to forecast the con- 
duct of any one individual considered by himself; all that con- 
cerns us is the conduct of men viewed en masse ; we have only to 
deal with averages, and therefore have no need of that exactness 
which is indispensable to the astronomer or the physicist. 

IV. THE FOUR ECONOMIC SCHOOLS.i 

The science of Political Economy is divided into numerous 
schools (into almost as many as philosophy), which is an incon- 
testable sign of inferiority. It is no real consolation to say that 
the science has existed for scarcely more than a century, and that 
age will remedy this defect. Other sciences which are no older, 

■ 1 In an Address given at Geneva in March, 1890, our author classifies the 
schools as those of Liberty, Authority, Equality, and Solidarity, respectively; 
and he ranks himself with the last. — J. B. 



l6 PRINCIPLES OF POLITICAL ECONOMY. 

some, indeed, which are younger, have already succeeded in de- 
veloping a collection of principles sound enough to gain the unan- 
imous adhesion of all their students. As this is not the case with 
economics, many keen intellects refuse to grant it the title of 
'' science," or at any rate declare that such a title is a premature 
one. Yet it is well to remark that the various schools differ from 
one another far less about the explanation of economic phenomena 
than about the mode of studying them, the way of judging them, 
and the practical consequences that can be deduced. The pos- 
sibility of a common understanding is not remote when the ques- 
tion is, for example, the discovery of the causes of the inequahty 
of wealth; but when the subject for discussion is to determine 
whether this inequality of conditions is a good thing in itself, and 
especially whether any attempt at modification is necessary, then 
it is that divergences of opinion become marked. They arise, 
then, from the moral and political character of this science, and 
probably will never disappear, though there is reason to hope that 
on certain essential principles some agreement will be arrived at. 

Section i. The Liberal School. 

The first of these schools is what is called classical, on account 
of its having appeared first, and having long reigned without a 
rival ; or liberal, in virtue of the famous formula which is its motto. 
But is it really a school ? Its partisans reply to such a question 
with some hauteur, and claim to represent the science itself; they 
assume, and for the most part receive, even from their opponents, 
the name of economists, and nothing more. The latter, however, 
sometimes term it, not without a touch of irony, the orthodox, or 
individualist, school. Its doctrine is very simple, and may be 
summed up as follows : — 

Human societies are governed by natural laws which we could 
not alter one jot, even if we wished, since they are not of our 
making. Moreover, we have not the least interest in modifying 
them, even if we could ; for they are good, or, at any rate, the best 
possible, (" The laws which govern capital, wages, and the dis- 



GENERAL NOTIONS. 



17 



tribution of wealth are as good as they are inevitable. They bring 
about the gradual elevation of the level of humanity." — Leroy- 
Beaulieu, Precis d'economie politique.) The part of the econo- 
mist is confined to discovering the action of these natural laws • 
and it is for men and governments to strive to regulate their 
conduct according to them. 

These laws are in nowise opposed to human Hberty; on the 
contrary, they are the expression of relations which are spontane- 
ously established between men living in society, wherever these 
men are left to themselves, and are free to act according to their' 
interests. Thus, between these individual interests which are 
apparently antagonistic a harmony is established, which exactly 
represents the natural order of things, and is far superior to any 
artificial combination which could be imagined. 

The part of the legislator, if he wishes to insure social order 
and progress, is confined, then, to developing these individual 
initiatives as far as possible, to doing away with whatever might 
interfere with them, and to prevent individuals from harboring ill 
will, or being biassed one against the other. Therefore the inter- 
vention of the powers that be ought to be reduced to that minimum 
which is indispensable to the security of each and of all; in a 
word, to laisser faire. " We assert that these natural laws govern 
the production and distribution of wealth in the manner which is 
the most useful ; i.e. the most conformable to the general good 
of the human species. Observation of them, together with the 
smoothing away of the natural obstacles which impede their action, 
and especially the prevention of any artificial obstacles, is suffi- 
cient to render the condition of man as good as is consistent with 
the state of advancement of his acquirements and his industries. 
Our gospel, therefore, is summed up in these four words, ' Laisser 
faire, laisser passer.' " — De Molinari, Les lois naturelles. 

The whole of Bastiat's famous work, the Harmonies econo- 
miques, is nothing but the development of these ideas. 

This conception assuredly lacks neither simplicity nor grandeur. 
Whatever destiny be in store for it, it will at least have the merit 



1 8 PRINCIPLES OF POLITICAL ECONOMY. 

of having assisted to establish the science of poUtical economy ; 
and, if some day other doctrines take its place, it will none the 
less be the foundation upon which they are built. 

The most serious complaint that can be made against this body 
of teaching is a very marked tendency to optbnism, which ap- 
pears to be inspired far less by a truly scientific spirit than by a 
desire to justify the existing order of things. Undoubtedly, from 
a consideration of the economic organization of a society and of 
the institutions which are its groundwork, the conclusion may be 
drawn that they are beneficial, at any rate in certain aspects ; for 
the very fact of their existence and duration shows well enough 
that they have a value which is at least relative ; further, that 
they are natural is a just conclusion to make, for they are evidently 
determined by the series of previous states which produced them. 
But in nowise can it be inferred that they are the best possible ; 
that conclusion is altogether illogical. Auguste Comte, years ago, 
protested in the name of science against " this systematic tendency 
to optimism which is clearly theological in origin" {Cours de 
philo Sophie positive, 48^ legon). 

But this doctrine cannot even offer the excuse that it agrees 
with theology, as Comte supposes ; for Christian theology is less 
optimistic than anything else. On the contrary, in its eyes, the 
actual order of things and all the manifestations of human liberty 
are irretrievably vitiated by the Fall. 

Nor is it any more legitimate to conclude that because natural 
laws are permanent and immutable, the existing economic facts 
and institutions should also possess this character of permanence 
and immutability. That, too, is a sophism, not to say word-jug- 
glery. If, on the other hand, as contemporary science shows a 
tendency to believe, the natural law, par excellence, is that of 
evolution, then it would be necessary to say that natural laws, far 
from excluding the idea of change, always presuppose it. When 
the Socialists, for instance, maintain that the wages system is 
bound to disappear, because, just as it has succeeded to serfdom 
and slavery, so it too will be replaced in turn by co-operation or 



GENERAL NOTIONS. I9 

some other at present not named state, their line of argmnent 
can no doubt be criticised ; but it cannot be stigmatized as con- 
tradicting natural laws, since these very laws cause the same plant 
to produce in succession, first seed, then flower, then fruit. 

Not only can economic facts and institutions suffer change, but 
also our will is by no means powerless in bringing about these 
alterations. Indeed, this will is every day and in the most effica- 
cious manner exercised on physical facts for their modification 
according to our needs, and this reasoned human action on natural 
phenomena is not in the slightest incompatible with the idea of 
natural law ; on the contrary, it is closely bound up with it. As 
M. Espinas wittily remarks in his Socieies animales, " If human 
activity was incompatible with the order of things, the act of 
boiling an Qgg would have to be regarded as a miracle." If, in 
truth, the idea of law were non-existent, if there were no bond 
between phenomena, if a cause might produce a certain effect, 
or might not ; in a word, if chance were the ruler of the world, 
man would be powerless to do aught, or to attain any end what- 
ever ; for while modifying such and such a fact he would never 
know what the result was to be, and his acts would be those of a 
blind man. Man erects lightning conductors to protect his build- 
ings because he believes in a natural law, viz. that metallic points 
exert a certain influence on electricity ; but, if electricity followed 
at random any track, it is clear that Franklin's invention would 
be useless. 

Besides, the mere opening of the eyes enables us to perceive 
at once man's marvellous power of modifying natural phenomena. 
Some, no doubt, from their immensity or their distance, obtain 
immunity from all acts of ours, — say, astronomical, or geological, 
or even meteorological phenomena : then we have but to submit 
to them in silence, and our power of prediction does not enable 
us to escape from a shock from a comet or from an earthquake ; 
but how many other domains are there in which our knowledge is 
almost supreme ! Most of the compounds of inorganic chemistry 
(the most important ones, by the way) have been made by the 



20 PRINCIPLES OF POLITICAL ECONOMY. 

man of science in his laboratory. On seeing the cattle-breeder 
in his stalls, the horticulturist in his gardens, ceaselessly modifying 
animal or vegetable forms and creating new races, it seems as if 
animate Nature herself submitted to a process of kneading like 
inert matter. Even atmospheric phenomena do not entirely escape 
from the power of human industry ; the latter, indeed, makes bold 
to assert that by fitting clearances, or by new plantations, it will 
modify the government of the winds and the waters, and, repeating 
the miracle of the prophet Elisha, will, whenever it wishes, bring 
down from heaven the rain and the dew. 

In much greater measure, our activity can be exercised on eco- 
nomic facts, precisely because they are acts done by man, and we 
have immediate hold over them. Even the teachings of the deter- 
minist school, those who deny free will (and surely the liberal 
school are not among such) recognize that man has the power of 
modifying the order of things in which he lives. They only make 
this reservation : that every act of man is itself predetermined by 
certain causes; but that is a question in pure metaphysics into 
which we have not to enter in this place. Without doubt, here as 
in the sphere of physical phenomena, this action of ours is restricted 
within certain limits, which science tries to mark out, and which all 
men, whether acting individually by means of private enterprise, or 
acting collectively under legislative regulation, should make it in- 
<:umbent upon themselves to respect. Here we might quote Bacon's 
old adage, " Naturae non imperatur nisi parendo " ; for the modifi- 
cation of economic facts, economic laws must be known and con- 
formed to. Alchemy strove to turn lead into gold ; chemistry has 
abandoned that useless quest, having found that these two bodies 
are simple elements, or at least irreducible ones ; but it has not 
renounced the attempt of converting charcoal into diamond, for 
in this case it has established the presence of one single body in 
two different states. The Utopian uselessly tortures nature to ask 
and obtain what it cannot give him ; the man of science asks only 
for what he knows to be possible. But the sphere of this term 
" possible " is far wider than the classical school imagines. 



GENERAL NOTIONS. 21 



Section 2, The Socialist School. 



The socialist school is as old as the classical school ; older, we 
may even say, for there were socialists long before there was any 
political economy. As the doctrines of this school are especially 
critical in nature, they are far harder to formulate than those of 
the preceding school. Still they may be summed up as follows, 
at any rate, in their essential features. 

The various socialist schools hold that the organization ol 
modern societies is tainted by certain essential vices, and is there^ 
fore destined to disappear at a more or less near future. In their 
eyes, this organization is not in the least a natural product oi 
liberty, but is the result of a long series of acts of injustice and 
spohation which have been in a measure hallowed by written laws. 

Their special objects of attack are private property and free 
competition, and their aim is to prove that the action of these two 
great springs, which set in motion the whole social organism, tends 
to sacrifice social to private interest, and to enable a few privi- 
leged persons to live at the expense of the huge body of the 
disinherited. 

They wait, then, for a new order of things, in which private 
property, if not completely abohshed, will at any rate be reduced 
to the minimum which is compatible with the just requirements 
of human personahty, and in which personal interest will no longer 
be the sole motor power, and will be subordinated to the collec- 
tive welfare. As to the manner in which this future society is to 
be brought about, the various schools have numerous divergent 
theories. Some, who might be called idealists, but who are most 
usually termed Utopians, and whose doctrines are nowadays some- 
what, perhaps too much, discredited, strive to build up this future 
society like a new house, with certain a priori principles of justice 
as foundation and as scale. Others, who proudly assume the title 
of scientific sociahsm, assert that this future society will sua sponte 
issue forth from present society, like a butterfly from its chrysahs. 
In the most interesting and original portion of their thesis they 



22 PRINCIPLES OF POLITICAL ECONOMY. 

labor to prove that this society of the future is now reposing, in 
the state of an embryo, in the womb of our present-day societies, 
which are already ripe for such a birth. It is sometimes care- 
lessly said that this school contests the existence of natural laws ; 
that is perfectly incorrect. On the contrary, it is irreconcilably 
determinist ; only, while for the liberal school the term " natural 
law " imphes the idea of stabiHty and immutability, to the socialist 
school it presents the idea of unlimited change and transformation. 
Instead of regarding human societies as Bastiat regarded the solar 
system, as turning round a fixed point and suspended in an eternal 
and changeless equilibrium, it pictures them in the shape of a 
plant or an animal, which from birth to death is undergoing cease- 
less transformations. We must confess that this is exactly the 
standpoint of contemporary science. Even the solar systems 
undergo change and transformation. 

In general, save for a few exceptions, it considers the Revolution 
to be indispensable for the substitution of the new order in place 
of the present. Coming from evolutionists, this manner of looking 
at things is at first sight rather astounding ; they attempt to justify 
it by noting that the process of evolution is often accomplished 
by means of crises ; i.e. by the brusque and even violent passage 
from one state to another. They instance the chrysalis, which, 
before becoming butterfly, must tear away its cocoon; or the 
chicken, which, to leave the ^gg^ must break the shell with its 
beak. 

All these schools (save one alone, the anarchist school, which, 
on the contrary, is violently individualist) are naturally disposed 
to extend as far as possible the functions of the collective powers, 
represented by the State or by the municipalities, since their aim is 
to transform into public agencies all that which to-day springs 
from private enterprise. It is only, however, as a transition step 
that socialism asks for the extension of the functions of the State. 
For it professes the greatest contempt for the State as it is to-day, 
the bourgeois State, as it terms it, which looks after its interests 
and carries on its enterprises by the same methods as are used by 



GENERAL NOTIONS. 23 

individuals. In its plans for reorganizing future society, this school 
avoids even pronouncing the word "state," and prefers to use the 
term "society." The State, in the sociahst plan, is to lose all 
political character, so as to become purely economic ; it is to 
become something analogous to the administrative council of a 
huge co-operative society, embracing the entire country. It is 
on this point that true socialism can be distinguished from State 
socialism. 

At this stage we cannot gauge the value of the criticisms directed 
by the socialist school against the existing order of things ; we 
shall come across them once more in the course of our further 
exposition. Suffice it to say here that they appear to contain a 
somewhat large portion of truth. It is especially from the critical 
point of view that contemporary socialism has produced some 
remarkable works ; notably, those of Proudhon in France, and 
those of Karl Marx in Germany. 

But it is from the positive, or, if it is preferred, the constructive 
point of view, that the weak side of this school is discoverable ; 
and we must observe that its most distinguished leaders, especially 
those whose names have been just mentioned, have prudently 
avoided any entrance into that field. The detailed exposition of 
the socialist ideal may, however, be seen in Schaffle's Quintes- 
senz des Socialismus (a German book, which has been trans- 
lated into French and into English), in Gronlund's Co-operative 
Commonwealth, and in Bellamy's very successful novel, Looki7ig 
Backward. In fact, whatever be the imperfections, or even dan- 
gers, of personal interest, and the desire to grow rich, as the motor 
power of the economic mechanism, it is not easy to see by what 
other means men can be made to stir. There are only two possible 
means, — compulsion and love. Now love, or altruism, as it is 
called in opposition to egoism, would indeed be the true solution, 
and we must hope for its realization in the future. But the so- 
cialists, who are relying on such a motor force at this time of day, 
are certainly showing their possession of an optimism which is 
as stubborn in its own way as that for which we were just now 



24 PRINCIPLES OF POLITICAL ECONOMY. 

blaming the economists. Before man makes up his mind to work 
purely out of love for his neighbor, a more radical transformation 
would be necessary than could be brought about by any social 
revolution. Man would have to procure a new heart. 

There is, therefore, reason to fear that, the motor spring of love 
failing them, the socialists will be obliged to fall back upon com- 
pulsion; now, besides the circumstance that the loss of liberty 
would be too high a price to pay for the general welfare, even 
at this price it is doubtful whether the desired result could be 
attained. For, in order that the production of wealth shall be 
abundant, the employment of individual energy is always requi- 
site, and experience shows that a 7'egi7ne of compulsion forbids 
the full exercise of such energies. Further, many socialists be- 
lieve that they will be able to dispense with individual initiative, 
and have recourse, instead, to the action of collective bodies, the 
State, municipalities, powerfully organized corporations, and so 
forth ; but this hope is based on no sounder foundation than that 
mentioned above. For every-day experience teaches us that asso- 
ciations, great or small, are worth not a jot more than the indi- 
viduals of whom they are composed. Consequently, every system 
which will tend to reduce mdividual energy will not stand a great 
chance of gaining anything especially advantageous from collec- 
tive enterprises, however ingeniously they may otherwise be organ- 
ized. 

Section 3. The Catholic or Christian School. 

Although the very epithet which is used as the distinguishing 
mark of this school appears to put it outside the pale of scientific 
classification, yet in some countries it has obtained too great a 
development, and even from the purely economic standpoint (our 
only object of study here) it presents too characteristic features 
for us to pass it by in silence. 

The Catholic school, like the classical school, firmly believes 
in the existence of natural laws, called by it providential laws, 
which govern social a§ well as physical facts. But it believes that 



GENERAL NOTIONS. ' 25 

the working of these providential laws may be seriously deranged 
by the action of human liberty, and that this indeed has actually 
come to pass by man's own fault ; the world is not what it was 
destined to be, what God would have wished it to be. We must 
observe that Fourier's theory^ also consisted of the asseveration 
that for man there is " a plan of God " the secret of which has 
been lost through man's own fault, but which he must try and 
rediscover. The Catholic school differs from the liberal school 
in not being in the least optimistic ; it regards the social order of 
things neither as good, nor even as naturally tending towards the 
best ; above all, it does not trust to laisser faire for the re-estab- 
lishment of harmony and the confirmation of progress ; for it is 
in this very liberty, or rather in liberaHsm, that it discovers the 
real cause of social disorganization. 

To take its programme : it hopes to re-establish social concord 
by the influence of a triple authority, that of the father in the 
family, of the ejnployer in the workshop, and of the Church in the 
State, these several "social authorities," of course, being bound to 
carry out reciprocal duties. It is not hostile to the interference 
of the State, which, to quote the words of Pope Leo XIII., " is, 
after the Church, God's minister for good." 

The vehemence of the criticisms made against the present 
organization of society by the Catholic school, together with its 
appeal to State interference in certain cases, has caused economists 
of the liberal school to call it Chi-istian socialism. Against this 
imputation it vigorously protests, and in truth, except for certain 
points of view which are common to them, it differs from the 
socialist school toto orbe. 

Firstly, in that it has no intention of aboHshing the fundamental 
institutions of social affairs as they are, such as property, inheri- 
tance, the wages system, etc. ; but proposes, on the contrary, to 
restore, that is to say, to strengthen them. 

^The features of Fourier's system are described in detail by Professor Gide 
in his introduction to the volume Charles Fourier, CEuvres Choisi^s (^P^tiU 
Bibliotheque Economique, Guillaumin, 1890). — J. B, 



26 PRINCIPLES OF POLITICAL ECONOMY. 

Secondly, in that it disbelieves in evolution and in the indefi- 
nite progress of the human species, and seeks its ideal far less 
in the future than in a return to some of the institutions of the 
past, for instance, to the family stock, to rural life, and to pro- 
fessional corporations of employers and workmen acting together. 

The term '^ family stock " (yfa7nille souche) is used by the school 
of Le Play to designate the family strongly bound together and 
stable as in older days, so as to form a small permanent society 
existing within society at large. This is in opposition to the un- 
stable and constantly scattered family which is the characteristic 
feature of modern societies. 

Le Play's school is a branch of the Catholic school,^ which, how- 
ever, is differentiated from the latter, and therefore becomes more 
approximated to the liberal school, by a stronger tendency to lay 
action as opposed to Church interference, and by a narrower limi- 
tation of the sphere of State interference. 

Brushing aside all controversy that might trench on political or 
religious ground, the strongest objection that could be made to 
this body of doctrine taught by the CathoHc school was long ago 
formulated by John Stuart Mill, when he asserted that there was 
no example of any class whatever, when in possession of power, 
having exercised that power for the benefit of the other classes of 
the community. It is greatly to be feared that, if ever the task of 
solving the social problem were entrusted solely to the ruling 
classes as employers, the mournful fact animadverted on by John 
Stuart Mill would receive but one confirmation the more. 

There is also a Christian (but not Catholic) sociahsm which is 
taking a more prominent place in Protestant countries, both 
in England and in the United States.^ Though denouncing the 

1 See the article of Mr. H. Higgs "Frederic Le Play" in 'd^^ Harvard 
Quarterly Journal of Eco7to7nics, July, 1890. — J. B. 

2 A sign of its presence in England is the formation of the " Christian Social 
Union " and the pubHcation of its organ, the Econo??iic Reznew. The leading 
members and writers are adherents of the High Church party in the English 
Church.— J. B. 



GENERAL NOTIONS. 2/ 

iniquities of the existing social order with no less severity than 
the Catholic school, and likewise waiting for " a land in which 
justice dwells," it is deeply divided from the Catholic school by its 
programme. For the conservation of social peace or concord it 
relies less on the authority of a few " classes " than in the increas- 
ing solidarity of all classes, and co-operative institutions appear 
to it to be the best means for bringing about such a solidarity. 
Thus, though it does not in a general way refuse all State inter- 
ference, still it is jealous to preserve all individual energy. 

Section 4. The Historical or Realist School. 

The school which was at first called " historical," or that of the 
" socialists of the chair " {Katheder socialisteii) , but which more 
readily receives the name of the realist school, sprang from a 
reaction against the classical school, as regards both its method 
and its tendency. It first saw the light in Germany about forty 
years ago, and professors of the German universities are still 
among the number of its leaders. By now, however, it has drawn 
into its fold many professors of political economy of all countries 
save France. (Reference may be made to the author's article 
" The Economical Schools in France " in the New York Political 
Science Quarte7'ly, December, 1890.) 

The commencement of this school is usually dated by the 
publication, in 1854, of Roscher's T^-eatise of Political Economy. 
It was in Germany, too, that the historical school of Law first arose 
under the guidance of Savigny. 

As to its method, the realist school absolutely rejects the deduc- 
tive method, which is based on a priori reasoning, on abstractions, 
and on hypotheses, and asserts that the only way of arriving at 
truth is by the patient observation of facts. 

It is to history that the realist school turns for the study of social 
and economic facts ; for history alone, by teaching us how economic 
and social institutions have been formed and are being transformed, 
can enhghten us as to their real character. 

Now social institutions, when studied from this historical stand- 



28 PRINCIPLES OF POLITICAL ECONOMY. 

point, are seen to be exceedingly changeable, varying, indeed, 
from nation to nation, and ceaselessly undergoing mutations in 
the very midst of any one individual people. In this manner the 
historical school claims to blow to the winds that double character 
of universality and of permanence which the classical school used 
to attribute to economic phenomena and used to gild with the 
name of natural laws. We must therefore cease to look for any 
general laws which regulate man as an abstract being, but must 
rather seek for the historical laws that govern the relations of men 
living in a specified society. Hence the name sometimes bestowed 
on this school, that of the "national-politico-economical" school. 

Whilst the classical school regards landed property and the 
wages system as definitive institutions which arise from necessary 
and general causes, the historical school merely looks on them as 
simple "historical categories," which spring from diverse causes and 
assume very variable forms according to the country and to the age. 

As regards its tendencies, this realistic school altogether rejects 
the principle of laisser faire ; in its opinion economic science has 
a practical aim to reach ; when a social science is in question, it 
thinks that the old distinctions between an "art" and a "science" 
are out of duty, and in this manner resorts to the conception enter- 
tained by the earliest economists (see page 2). It holds that we 
can only hope to modify economic institutions in the direction 
pointed to us by history, and that therefore the science includes the 
art in the same manner as the past contains the future. " What is, 
what will be, what ought to be," are to this school inseparable terms. 

Precisely because of the little weight it allows to the notion 
of natural law, it attaches a proportionately greater importance 
to the positive laws emanating from the legislator, and beholds 
in them one of the most important factors of social evolution. 
To quote M. De Laveleye {^Eleiiients (feconomie politique, page 
17), "The laws with which political economy is concerned are not 
the laws of nature ; they are those laid down by the legislator. 
The former elude the will of man ; the latter proceed from it." 
Hence it is led to considerably extend the functions of the State^ 



GENERAL NOTIONS. 29 

and on this point does not in the least share the antipathy or the 
distrust felt )3y the liberal school. This tendency has earned for the 
new school, or at least a section of it, the name of State Socialists. 

This school has of late gready influenced not only men's thoughts, 
but likewise legislation. Most of the laws promulgated during the 
last twenty years, which are known as "labor legislation," as well 
as the powerful movement in favor of the international regulation 
of labor, are in large measure its work. 

It has certainly rendered great service to the science by broad- 
ening the narrow, factitious, studiedly simple, and vexatiously 
optimistic point of view at which the classical school has always 
remained stationed. It has conferred on it a new life by reju- 
venating its somewhat empty theories with new materials drawn 
from history, the comparison of laws, and statistics. This school 
has caused political economy to quit that systematic abstention 
in which it was wont to enclose itself; and to the question men 
have so long been propounding, "What is to be done?" it has 
sought another reply than a sterile laisserfaire. 

As regards the deHcate matter of State interference, we thor- 
oughly agree with the new school in recognizing an historical fact 
in the incessant development of State functions, which, perhaps, is 
precisely one of those natural laws whose very existence is disputed 
by the school in question. Like it, too, we believe that the State's 
mission is to develop more and more the social solidarity (or the 
cohesion of society) of which it is the living image, even though 
for the accomplishment of this end it may have to exercise its 
authority and impose according to its discretion sacrifices on some 
for the benefit of others. Too often, alas, the State has shown 
itself unfit for the right exercise of this high social function ; for 
in the past it has only served as an instrument in the interest of 
one class, and indeed, in the democratic governments of to-day, 
for the benefit of one party. Such a procedure has thus given 
some weight to the arguments of the liberal school. However, the 
education of States is gradually progressing ; more rapidly, indeed, 
than that of individuals, who are ceaselessly carried off by death. 



30 PRINCIPLES OF POLITICAL ECONOMY. 

There is, therefore, reason to hope that when the State has been 
founded on more scientific bases, when pohtical economy aids it 
in marking out its road, and when practical questions take the 
place of sterile political questions, on that day the State will be 
able to exercise in economics a more rational and efficacious 
influence than it has hitherto done. 

It is with regard to its method that this new school is the most 
vulnerable and open to criticism. The result of its desire to be 
realistic and descriptive is, that it appears to have lost sight of 
the true character of the science, which, in spite of all endeavors, 
must remain in the nature of an abstraction, 

Chevreul, the French scientist, who recently died, having passed 
the age of a hundred years, used to say, " Every fact is an abstrac- 
tion." ^ Though this dictum seems a strange one at the first glance, 
yet it is easily understood if we only consider that what we call a 
fact is previously something which has had to be separated out of 
a host of other connected facts, and for the observation of which 
abstraction has had to be made of many other things. 

Thus, in scoffing at the procedure and the methods of the de- 
ductive school, the new school exhibits much affectation and some 
ingratitude ; for, in fine, it still lives and moves in the categories 
which were laid down by the old school. It has not exactly re- 
made the science ; it has merely informed it with a new spirit. 
By applying its attention to the observation of facts and the varia- 
tions shown in various nations and at various times, its tendency is 
to fall into erudition, and to lose sight of the general conditions 
which everywhere determine economic phenomena. If it were 
necessary to renounce any attempt at discovering permanent re- 
lations and laws under the changing manifestations of phenomena, 
we should be obliged definitely to abandon our attempts to form 
a science of political economy ; however dangerous to the science 
rash hypotheses might be, they would be infinitely less serious than 
such a confession of weakness. 

1 Or, as has been said by Professor Edward Caird, * There is only One Fact, 
and every part of it taken separately is an abstraction.' — J. B, 



BOOK I. 

WEALTH AND VALUE. 



CHAPTER I. 
WEALTH. 

I. The Desire for Wealth. 

To be rich, in the popular sense of the term, is for a man to 
have the means of obtaining for himself good food, good clothes, 
good housing, and careful nursing if he falls ill ; to be able to 
keep sufficiently warm in winter and agreeably cool in summer, to 
have easy means of access and of transit to wherever he wishes 
to go, and to partake of all the pleasures offered by civiHzed life 
to those who can profit by them. It is, too, to be exempt from 
the necessity of working for a livelihood, to be free to do as he 
pleases, and to follow his tastes and his fancy. Finally, it is to be 
released from all anxiety as to his future or that of his children. 
Wealth considered from this point of view depends on \\\Q-quan- 
tity of goods that a man possesses, and is synonymous with abun- 
dance. 

But the word "wealth " presupposes something more than this ; 
it indicates a state of superiority, and consequently implies ine- 
quality of conditions. It points out the privileged position of a 
man by which he is enabled to command the labor of a multitude 
of his fellow-creatures, or what comes to the same thing, to dis- 
pose of the products of their labor. "Riches is power," said 
Hobbes, and such, in truth, is the etymological meaning of the 

31 



32 PRINCIPLES OF POLITICAL ECONOMY. 

word {Reich, empire, power). Considered from this point of 
view wealth is a purely relative state, and depends far less on the 
quantity of goods possessed by a man than on that possessed by his 
fellows. If they have less than he has, he is rich ; if they have as 
much as he has, he is not rich. It is clear that if every one was 
rich, there would be no more rich men. 

It is not surprising, then, that from time immemorial wealth has 
always been ardently coveted by men ; although the opinion is 
permissible that this desire, now raised to the rank of a passion, is 
beginning to assume a somewhat excessive development in certain 
societies, especially in those in which we live ; although it may be 
salutary for a more austere system of morality to strive, hitherto 
without much success, to moderate so exaggerated a passion, yet 
we have no hesitation in declaring that this desire is natural and 
even legitimate. 

To proceed : a distinction must be drawn between the motives 
which incite man to seek wealth ; they are of two different kinds, 
and correspond to the two aspects under which the idea of wealth 
is presented. Men seek wealth, both to satisfy their wants and to 
mark themselves off from their fellows ; they are urged in the 
former direction by the desire for well-being, in the latter by the 
desire for inequality. 

The legitimacy of the first of these motives can be the more 
easily established. Man has the right, and even is bound by the 
duty of trying, to satisfy all those wants which lead to the preser- 
vation and development of his being in the broadest sense of these 
words. What may be blamable in the matter is not so much the 
desire for wealth as the means employed for its obtainal, and 
especially the use that is made of it. If wealth in this world were 
always the result of personal labor, if it were always directed 
towards the greatest good of man, physical, intellectual, and 
moral, its effects would be ever beneficial, never baneful ; there 
would never be too much of it ; nay, there would never be enough. 

Unhappily, it is far too certain that in the whole world, and even 
in our modern societies, which are so proud of their knowledge 



WEALTH AND VALUE. 33 

and so vain of their luxury, the vast majority of men do not pos- 
sess even that minimum of wealth which constitutes daily bread, 
far less that amount of comfort the absence of which always 
lowers human dignity. The unequal distribution of wealth may 
deceive us on this point ; but if a division could be made, the mis- 
erable share which would fall to each would dismay the observer. 
We should then be thankful that we are rather richer than our 
fathers, and make bold to hope that our children may be much 
richer than we are. If the day comes, as we must hope, when 
wealth will be so increased as to amply provide for the material 
wants of all, then it will be time to call a halt, and humanity at 
large will henceforward be able to devote its strength and its time 
to the pursuit of goods of a more noble kind. 

The legitimacy of the second motive seems to be more dis- 
putable, and it is fair to hold that the desire for inequality is not a 
beneficent feeling. Yet it hardly appears that it could be sup- 
pressed or even much reduced without gravely injuring civilization ; 
probably without it the source of wealth would soon be dried up. 
Indeed, for the multiplication of wealth we must not trust only to 
the former of these two motives, the desire for well-being ; this 
feeling is not innate in man's breast, as we are too apt to suppose 
— witness those primitive societies which live in eternal poverty 
without ever seeking to emerge therefrom. It is the desire for 
inequality, or, if you will, what comes exactly to the same thing, 
the desire to rise above the common level, which is the cease- 
less goad of man's natural idleness. 

Mr. Mallock, an English • author, has devoted a whole volume. 
Social Equality, to the development of this idea, which he de- 
fines, perhaps not without some exaggeration, in the following for- 
mula : " All productive labor that rises above the lowest, is always 
motived by the desire for social inequality." — Social Equality^ 
pages 35, id. 



34 PRINCIPLES OF POLITICAL ECONOMY. 

II. The Wants of Man. 

There is no hvmg being that has not certain wants, were it only 
that of food, which must be satisfied for the creature to Hve and 
attain its ends. The higher we go in the scale of hfe, the more 
compHcated and sensitive is the organism, and the more complex 
and multiple do the wants become ; for the being which occupies 
the summit of the hierarchy, for man, they are legion. Could we 
come to know a being superior to man, we should certainly dis- 
cover that he possessed an infinitude of wants of which we in this 
world can form no idea whatever. 

If the progression of wants is so marked on turning from lower 
to higher beings, it is no less striking on passing up from savage 
to civihzed man. Had we to point out the most characteristic 
feature of that social state which is denoted by the somewhat in- 
definite term, civihzation, the most noteworthy, perhaps, would be 
the multiplicity of wants. The art of civilizing a people consists 
in implanting in it new wants ; this is proved by the example of 
savage communities. 

The wants of humanity are like those of a child. The child, at 
birth, needs nothing except a little milk and a warm covering ; 
but little by little he comes to require more varied food, more com- 
plicated garments, and, moreover, toys ; each year arises some new 
want, some new desire. We, to-day, are sensible of a thousand 
wants which were unknown to our grandfathers, relating to com- 
fort, hygiene, cleanhness, education, travel, social intercourse ; and 
it is certain that our grandchildren will have further needs. The 
more we see, the more we learn, the more our curiosity awakens, 
and the more, too, do our desires increase and multiply. Each in- 
vention, each idea that is born into the world, engenders a whole 
generation of new wants. Doubtless, some of the number do not 
continue, and after having lasted for a few generations, or perhaps 
only for a few days, sink hke dead leaves falling from the tree ; 
maybe the very caprice that gave them birth abandons them, as 
with the ephemeral creations of fashion ; maybe a new and con- 



WEALTH AND VALUE. 35 

flicting want dethrones its predecessor. But in a general way, 
the number of wants which disappear far from balances the tale 
of those which arise, and just as with the generations of men we 
have a crowd which goes on multiplying from age to age. 

A school of moralists which dates from a very high antiquity, 
reckoning among its founders Diogenes with his tub, regards this 
progressive and indefinite multiplication of wants as a great evil, 
which political economy should apply itself to stop. But, for our 
part, we can see in the development of these wants nothing more 
than the normal development of human beings ; we think that an 
attempt to restrict the former would be to rob the latter, and that 
for the suppression of wants we should first of all have to suppress 
ideas. 

Without doubt, among these wants, which are ceaselessly spring- 
ing up among the generations of man, there are many which are 
frivolous or even harmful, and which far from favoring man's 
development only serve to retard it ; e.g. the taste for alcoholic 
liquors. But we must observe that for the efficacious eradication 
of any want whatever, the best means is to substitute another one. 
Indeed, to combat this very alcohohsm, temperance societies have 
found that the best mode is to open establishments in which an 
attempt is made to accustom consumers to drink tea or coffee. 
There is reason to hope that in the future, when man's aims are 
more enlightened and his desires are conformable only to his true 
nature, he will be able to follow them without arriere-pensee ^ and 
to strive to satisfy them without experiencing remorse. 

Even admitting that in certain cases contentus sua sorte may be 
the motto of a philosopher, it should never be the watchword of a 
people. Woe to the races which are too easily satisfied, whose 
desires do not stretch beyond the narrow circle of the bounding 
horizon, and whose only requisites are a handful of ripe fruit for 
food and a nook in a wall where they may sleep shaded from the 
sun ! They will not be long in vanishing from an earth the capa- 
bilities of which they have not turned to advantage. 

The school of moralists, of which we have just spoken, starts 



30 PRINCIPLES OF POLITICAL ECONOMY. 

from the idea that the fewer wants a people has, the more time 
will it devote to intellectual sj)eculations. But experience shows 
that in reality, the inverse order of things comes to pass, and that 
the fewer wants that races have, they are, in general, the more idle, 
ignorant, and swayed by the grossest appetites. 

It is easy to understand in virtue of what law the wants of man 
tend to develop in this wise. A want, still timid and ill-defined, 
arises first of all in the bosom of one single man, or in the hearts 
of a small group of men ; in those, only, who from their privileged 
position have already been able to amply satisfy the primary 
necessities of life, and who then turn their desires to a new hori- 
zon. But man, before all, is an imitative being ; by imitation the 
want is immediately propagated. Like an epidemic it speeds 
from neighbor to neighbor. Every one feels it, or fancies he does, 
and applies himself to find some means for satisfying it. In pro- 
portion as the progress of industry allows the gratification of this 
satisfaction with greater ease and at less expense, the imitators 
continuously increase in numbers, and what was at first merely a 
caprice of luxury, reserved for those favored by fortune, soon 
penetrates the lowest strata of society. This subject is treated 
in an interesting way in M. Tarde's book Les Lois de Vimita- 
tion, to which we have previously referred. 

From another side, in addition to having surface extension, the 
want also gains in depth. Man is not only an imitative being, he 
is also a being with habits ; desire, once felt and regularly satis- 
fied, gradually becomes fixed, takes root, and can no longer be 
torn away without a painful shock. As is so well expressed in 
popular language, it becomes second nature. At one time work- 
men wore neither linen nor foot-gear, had neither coffee nor tobacco, 
and ate neither meat nor wheaten bread ; nowadays these wants 
have become so inveterate, that the workman who was unable to 
satisfy them and was suddenly reduced to the condition of his 
fellows in the times of Saint Louis or Good King Henry would 
certainly die. 

If we add that a habit which has been transmitted through a 



WEALTH AND VALUE. 3/ 

long series of generations is not slow in becoming fixed by means 
of heredity, and that the senses grow more subtle and more exact- 
ing, we shall be able to appreciate the despotic power acquired in 
the long run by a want which at its origin appeared to be the ' 
most futile or the most insignificant. 

It would be impossible to give a complete classification of the 
wants of man, but most of them can^ be ranked under these four 
heads : food, housing (including furniture, heating, and lighting), 
clothing, and ornament The first two are shared by man with the 
animals ; the last two are pecuUar to him. The last of all, whatever 
may be said as to it, is as natural to man as the preceding are ; in 
fact, it might even be placed before clothing. As Th^ophile 
Gauthier has remarked, the Papuans, who go about stark naked 
and eat earthworms, hang colored berries from their necks and ears, 
and cover their bodies with tattoo-marks. Very nearly all the wealth 
to be found in all countries exists only to satisfy these material 
wants, particularly the first one, food ; and this holds even in 
societies which have reached a high pitch of prosperity and might 
be thought to have done with these first necessities of existence. 
[Let the quantity of nourishment necessary for each Frenchman 
be on the average ten pence a day — by no means an exaggerated 
amount ; this represents, for the whole of the French population, a 
yearly consumption of ;2{^5 60,000,000 sterling, or probably more 
than half the entire production of France !] Yet education, the 
taste for the beautiful, the need of social intercourse or of travel- 
ling from place to place, the desire for always knowing the latest 
news, or for amusement, Aay, for fighting, which is more fashion- 
able than ever, — all these call into existence a number of impor- 
tant articles of wealth in the shape of libraries, telegraphs, and 
telephones, carriages, tramways, omnibuses, newspapers, theatres, 
pictures, music, cannon, and ironclads. 



38 PRINCIPLES OF POLITICAL ECONOMY. 

III. The Definition of Wealth. 

In the vocabulary of political economy, the word " wealth " has 
not altogether the same meaning as it has in popular speech. It 
does not exactly denote a certain state, a certain fortune, the fact 
of being rich, but it points out certain things, all those things the 
possession of which can obtain for us any satisfaction whatever, 
independently of any idea of quantity or of opulence. In this 
sense, a bit of bread, a pin, a farthing-piece, is from the economist's 
point of view as much wealth as is an estate, a diamond necklace, 
or a certificate of government stock. 

The first condition necessary for a thing to be termed wealth is 
that it should serve to satisfy some want or desire, in other words, 
that we should judge it to be useful ; for utihty is nothing but the 
correlation we establish between certain things and our wants. 

The judgment that we thus pass on the utility of things may 
chance to be gravely erroneous.-^ Relics of more or less authentic- 
ity have been for many centuries, and to-day even in some coun- 
tries are still regarded as incomparable wealth, on account of 
certain virtues which are attributed to them. Many mineral waters 
and pharmaceutical preparations are much in request, though their 
healing properties are far from being proved. No matter ; whether 
useful or not, the mere fact of our judging them to be such con- 
stitutes them wealth. 

Generally, however, our judgment is not altogether blind, and 
our holding a thing to be useful arises from our having reason to 
beheve that it really is so, from our discovery of some relation 
between its physical properties and some one of our wants. Bread 
is useful, partly because we have need of nourishment and partly 
because corn contains just those elements which are specially fit- 
ting for our food. The diamond is so highly prized because it is 
in the nature of man, as well as in that of some animals, to expe- 
rience pleasure on looking at shining objects, and the diamond, in 
virtue of its powers of refraction, which excel those of any other 

1 i.e, from the point of view of a riper wisdom. — J. B. 



WEALTH AND VALUE. 39 

known substance, has just this property of shedding incomparable 
beams. 

It is for science to enhghten our judgments by instructing us as 
to the properties of bodies and the laws of nature. In this way, 
thanks to discovery and invention, the patrimony of humanity is 
increased every day by some new conquest : at one time, out of 
the clay which constitutes the mud of our streets, human industry 
makes the sparkling, solid, and at the same time hght metal, which 
we call aluminium ; at another, it converts the foul waste of coal 
into colors which are more splendid than Tyrian purple. Yet the 
list of the things that we make use of is still exceedingly small, when 
compared with the immense number of those that we turn to no 
account. Of the 140,000 known species of the vegetable kingdom, 
less than 300 are used in farming ; of the millions of species reck- 
oned in the animal kingdom, there are scarcely 200 that we have 
turned to any service ; and with inorganic bodies the proportion 
is not more favorable (De Candolle, Origine des plasties cultivees, 
page 366). But the list of our riches is lengthened every day, 
and there is every reason to believe that, were our knowledge per- 
fect, this vast world would not contain one blade of grass, one 
grain of sand, in which we had not been able to discover some 
measure of utility. 

However, to be able to reckon a thing in the number of our 
riches, it is not enough to know that it is useful ; it is also neces- 
sary that we should be able to utilize it. Knowledge is power, as 
the saying goes, but that is not always true ; our knowledge may 
remain in the purely speculative stage and not supply us with any 
practical means of reaching our ends. We know that the dia- 
mond is a crystal of carbon, but we have not yet succeeded in 
making diamonds out of coal ; we know that in China or in Ton- 
quin there are very rich coal mines, that on the African plateaux 
there are fertile and healthful tracts and probably gold mines, but 
for various reasons neither the ones nor the others are within our 
reach, and we cannot work them. They are, therefore, not wealth, 
at least for the present, any more than are the fertile tracts or 



40 PRINCIPLES OF POLITICAL ECONOMY, 

precious metals which the astronomer, by aid of telescope or spec- 
trum analysis, might discover on Mars or on Venus. 

Those primary conditions indicated above are beyond the reach 
of discussion ; but there are two others which have for long excited 
famous controversies among the learned, though fortunately they 
are merely questions as to words. 

The first question is, Does the definition of wealth necessarily 
imply the idea of materiality ? In the eyes of all the older econo- 
mists, and of the greater portion even now, this further condition 
appeared to be as indispensable as the two primary ones ; and it 
is certain that in current speech the word "wealth" necessarily 
awakens the idea of a " thing " {7'es) which is perceptible by our 
senses, can be touched, can be counted, can be weighed. We 
may certainly say that virtue, talent, and savoij' faij-e are wealth, 
but we shall be thought to speak in metaphor. 

However, it is our opinion, though not formed without some 
hesitation, that this condition is not indispensable, and that the 
metaphor is in fact the reality. Everything that is of a nature to 
answer to any desire felt by man and to obtain for him certain 
advantages, everything that in his eyes is worth the trouble of 
being paid for, either at the price of a personal effort or by the 
sacrifice of a sum of money, necessarily falls within the sphere of 
political economy and constitutes "wealth." 

The opinion given by the physician is wealth by absolutely 
the same right as the morphia he administers to his patient ; the 
instruction that a professor gives his pupils is wealth in exactly 
the same way as the book he pubhshes and exhibits for sale at 
the bookseller's. If the barber's pole or shaving-dish which is 
exposed as his sign outside his door is regarded as wealth, surely 
we should consider as wealth of a like nature the name and the 
social standing of a business firm or a banking house. 

Besides, if this terminology be found to clash too violently with 
our inherited habits of speech, nothing prevents us from restrict- 
ing the term "wealth " to " things" properly so called, and to give 
the name of ^^ services " to every act of man which is able to pro- 



WEALTH AND VALUE. 4I 

cure any satisfaction for his fellows, in a direct manner and without 
intermediate incorporation in a material object. However, some 
very recent writers — e.g. Clark, Pantaleoni, and Mazzola — have 
remarked, not without considerable subtlety, that to give a man 
any gratification, he must be acted on by means of his senses, and 
consequently by the intermediation of some material object, — the 
sound-vibrations of the air in motion, the luminous vibrations of 
the ether. Thus the words of the lecturing professor would not 
reach us in a vacuum, nor would the facial expressions of the actor 
be visible in an unlit night. From this point of view, then, we 
may say that there cannot be any '^non-material " wealth.^ 

We now come to the second question. Does the definition of 
wealth necessarily imply the idea of value ? This condition is 
no more indispensable than the other. The idea of value is not 
necessarily bound up with the idea of wealth ; for surely a fertile 
soil, a mild climate, a fine network of navigable rivers, and safe 
and deep roadsteads are the earnest of wealth for a country ; and 
yet they have no exchange -value. It is even possible to establish 
an antithesis between these two terms; '^wealth" corresponding 
to the idea of abundance, "value" answering to the idea of 
scarcity. Let us suppose, for example, that by a lucky miracle 
worked by human industry all products were to be so multiplied 
as to become as abundant as spring water or the sand of the 
shore ; should we not have to regard this marvellous multipli- 
cation as an increase of wealth, nay, as the climax of wealth? 
Yet according to the above hypothesis, all things, precisely on 
account of their superabundance, would have lost all value ; they 
would have neither more nor less value than that very spring 
water or those grains of sand with which we just compared them. 

This, however, is the question which J. B. Say thought to be the 

1 This argument alone would drive us back to the position which the 
author, perhaps too hastily, abandoned. The arguments against regarding 
good-will of a business, etc., as wealth, over and above the particular things and 
services to which they relate, are given by Dr. Bohm-Bawerk, in his Rechte 
und Verh'dltnisse ( 1 88 1 ) . — J. B. 



42 PRINCIPLES OF POLITICAL ECONOMY. 

most difficult in political econoniy, and which he set forth thus : 
" Wealth being made up of the value of things which are pos- 
sessed, how can it come about that a nation will be the richer by 
lowering the price that is asked for those things? " — Cours d'eco- 
nomie politique, Part III, Chap. V. Proudhon in his Contradic- 
tions economiques raised again the same questions and defied " any 
serious economist " to answer it. This contradiction is only arbi- 
trary, and arises solely from a certain double meaning of the term 
" wealth," of which we have already warned our readers {vide page 
31 seq.). As far as the word "wealth " means satiety, comfort, it 
is connected only with the idea of abundance, and is completely 
independent of the idea of value in exchange. It is considered 
under this aspect when we treat of a country, or better still, of 
humanity at large. But when " wealth " signifies inequality, the 
relation of superiority of one individual to another, in this sense 
the idea of wealth is inseparable from the idea of value. A vine- 
yard proprietor, for instance, is rich not in proportion to the greater 
or less abundance of the vintage, but in proportion to its greater or 
less degree of value. If he were the only person who had grown 
wine that year, his wealth would be at its maximum ; but if wine 
was as plentiful as spring water, he would be ruined. Madame de 
Sevigne expressed this most picturesquely when she wrote from 
Grignan (October, 1673) : "This whole place is bursting with 
corn, and I have not a farthing. Seated on a heap of corn I 
shriek, 'I am starving.' "^ If we repeat our previous supposition, 
that all products became superabundant, in that land of plenty 
there would clearly be no more rich persons ; for henceforward all 
men would be equal before the valuelessness of things, just as 
Rothschild and the beggar are equal under the light of the sun. 

We might get clear of our difficulty by being careful to use the 
word " goods " {bona) instead of " wealth " whenever the term is 
used in an absolute sense to denote abundance, welfare, and to 

1 See the article " Abundance " in Palgrave's Dictionary of Political 
Economy. — J. B. 



WEALTH AND VALUE. 43 

reserve the word " wealth " for the cases in which it is taken in its 
relative sense, as denoting a certain social situation. 

Yet it happens that, as in practice wealth is only regarded from 
the point of view of the relations of individuals with individuals, 
the second acceptation of the term is by far the more widespread ; 
hence in ordinary speech the idea of wealth is always associated 
with the idea of value. This latter, however, is a distinct idea, 
and now requires our separate study. 



CHAPTER II. 
VALUE. 

I. What is Value ?i 

When we know that a thing is suitable to procure for us any 
satisfaction whatever, it thereupon becomes the object of oui 
desires. But even of the things which are of a nature to obtain 
for us certain satisfactions, all are not equally desired or equallj 
desirable. We do not place them casually on the same footing, but 
we arrange them in a sort of hierarchy. Some we prize very highly, 
others we think of little worth ; in a word, we have preferences. 

Now, the order of these preferences, this unequal place in our 
esteem which we attribute to them, is precisely what is expressed 
by the word " value." To say that gold has more value than silver, 
or, more generally, that gold has a great value, simply states the fact 
that for one reason or another (which reason we shall try and find 
by and by) we judge that gold is more desirable than silver, or 
more desirable than any other object. Value, then, which is the 
dominating idea in all poHtical economy, denotes nothing more 
than a fact which in itself is very simple, the fact that a thing is 
more or less desired. Were the word French, we should only have 
to say, "Value is desirability^ It is much to be wished that this 
word, though a trifle barbarous, may be allowed to be added to 
the vocabulary of poHtical economy, which up to the present is by 
no means rich. 

1 This section would perhaps have been clearer, if the author had seen his 
way to adopt the distinction between Subjective and Objective Value drawn 
by the Austrian Economists and corresponding roughly to the old-fashioned 
distinction between Value in Use, and Value in Exchange. — J, B. 
44 



WEALTH AND VALUE. 45 

But from this idea, however simple it be, some very important 
consequences spring. 

Section i. Since value arises from desire, it proceeds from us 
rather than from things ; as we say nowadays, it is subjective far 
more than objective. It is not attached to objects as a quaHty 
which can be perceived ; it is born at the moment when desire 
awakes, and vanishes when it dies out. Like a butterfly, desire 
flutters from thing to thing, and value abides only where desire rests. 

Doubtless if an article of wealth is one of those which answer 
to the permanent wants of the human race, say corn or iron, it 
will be able to maintain its value throughout the ages ; but if it is 
one of those which only correspond to those changing wants that 
are daily turned topsy-turvy by the caprices of fashion or the dis- 
coveries of science, then its value is as ephemeral and fugitive as 
the want which created it. Dresses that are no longer worn, 
books that are no longer read, pictures that have ceased to be 
looked at, remedies that no longer cure, — how long the list would 
be of those riches which have lost their value ! But yet, if by 
chance the desire of the collector, perhaps the most intense of 
all desires, happens to settle on these dead riches, they will receive 
a new lease of life and will immediately obtain perhaps a far 
higher value than they had in the course of their previous exis- 
tence. But value varies not only at different times, but also from 
country to country and even from individual to individual. We all 
know the proverb de gustibics non disputandum : let us add " and 
values " j for they too depend on each man's tastes. 

Nor is this all : value may vary in each individual according to 
circumstances. A starving man will rank food as the first in the 
order of his preferences, and like Esau will sacrifice a fortune in 
exchange for a mess of pottage ; but when once fiUed he will give 
not a farthing for it. 

Yet an objection presents itself. If value has thus a purely 
subjective, individual character, does it not appear that each thing 
ought to have as many different values as there are individuals ? 
But such is not the case ; in the market corn is sold at the same 



46 . PRINCIPLES OF POLITICAL ECONOMY. 

price for every one : the starving man will pay neither more nor 
less than he who is filled to repletion. We are so accustomed to 
this fact that it seems perfectly natural ; yet it is somewhat surpris- 
ing. It is explained by the competition which takes place in the 
same market between the sellers and buyers, and which brings it 
about that no one, however strong his desire may be for a thing, 
will consent, usually speaking, to pay more for it than his neighbor. 
The value of the sack of corn does not precisely depend on the 
desire any person may have for this particular sack, but on the 
general desire all the persons in the market may have for the sacks 
of corn there on sale. See for this matter "The Effects produced 
on Value by Competition." 

However, if we satisfy ourselves with averages and neglect indi- 
vidual cases, it would not be difficult to conceive a classification 
of articles of wealth, arranged according to men's preferences in 
a fixed time and country ; on this all articles of wealth would . 
appear in their order of value, from the diamond which is worth 
about ;^20oo a grain down to water which is worth a fraction of a 
penny a ton. It is under this form that the idea of values should 
be represented, and assuredly such tables would be very instructive 
and suitable for informing us as to the manners and ideas of 
different races and different times. 

Section II. It results, then, from our definition that the notion 
of value is purely relative, consisting as it does in a preference 
given to one thing over another. It therefore necessarily pre- 
supposes a comparison between the two things. It is a notion of 
the same class as size or weight. 

To say that a thing is worth would be unintelligible if we did 
not add "is worth more or less than other things " ; and when we 
use, without any addition, the current phrase that some object, 
say diamond, has " a great value," the term of comparison, though 
understood, exists none the less. We mean to say, either that it 
has a great value relatively to the unit of money, in which case it 
is compared with that specific object which we call pieces of 
money ; or that it takes a high place in the scale of wealth, in 



WEALTH AND VALUE. 4/ 

which case it is compared with all other wealth considered col- 
lectively. Similarly, when we say that a body, e.g. platinum, is 
very heavy, without expressing any comparison, we mean either that 
it represents a considerable number of kilogrammes, — that is to 
say, we compare it with the weight of a litre of water, — or that on 
making out the list of all bodies known to us, it would take the 
first place from the point of view of weight. 

Section III. It follows, then, from our definition that we ought 
never to speak of a rise or fall of ail values : such a proposition 
would be meaningless. For if value is nothing more than an order 
or classification established between articles of wealth, how is it 
conceivable that all values can at one and the same time rise or 
descend? In order that some may rise in the scale, they must 
take the place of others, which consequently must fall. It is just 
as if the candidates who are admitted to the Ecole Poly technique 
or the Ecole Normale^ and classed according to order of merit, 
were to ask if they could not all at the same time have obtained a 
higher place. However, as we shall see presently, a general rise 
or fall of prices is a perfectly intelligible and indeed very frequent 
phenomenon. 

II. What is the Cause of Value ? 

We have just stated that things have greater or less value 
according as we desire them more or less ; in fact, that the order 
of values is none other than the order of our preferences. 

But that is not enough : we should like to penetrate deeper and 
discover the rationale of these desires and preferences. Why do 
we prefer one thing to another? If we can answer this question, 
we shall have lighted on the cause, the essential element of value. 
Unfortunately this is the most difficult inquiry to be met with in 
all political economy. If we are dealing with two objects which 
answer to the same want, then we have not much trouble in find- 
ing our reply; we shall certainly prefer the one which by virtue of 
its qualities appears the better fitting to satisfy our want ; i.e. which 
is the more useful : of two fruits of the same species we shall choose 



48 PRINCIPLES OF POLITICAL ECONOMY. , 

the more luscious, of two sheep the fatter, of two pictures the 
better painted, of two rooms the more comfortable, of two pieces 
of land the more fertile ; in fact, of any two commodities whatever 
we shall choose that which is of the better quality. If the two 
objects satisfy the same want equally well, then they must have 
the same value. 

On this hypothesis, then, utility seems to be the raison d'etre 
of our preferences, and therefore the true foundation of value. 

But now let us consider two objects which answer to different 
wants, say a loaf of bread and a hat. How shall we find the 
reason for our preferences? The guiding thread escapes our 
grasp. Here, indeed, we have no longer to compare two objects, 
but two wants ; but our wants have no common measure. 

Are we, then, to say that our wants can be accurately classified 
from the point of view of reason, morals, or hygiene ? that thence 
we prefer, or ought to prefer, the objects which correspond to the 
most essential wants ? in fact, just what is expressed in popular 
parlance every time anything is said to fall under the category of 
necessary, or useful, or agreeable, or superfluous objects? 

Then utility would still stand as the reason for our preferences 
and the foundation of value, but only on condition that we use 
this word "utility " in its common sense ; i.e. that we interpret it as 
meaning an object's property of answering to some more or less 
rational and more or less legitimate want. We should then have 
to say that our loaf has more value than our hat, because it is 
more essential for man to obtain nourishment than to cover his 
head. 

But this conclusion suffices of itself to prove the futility of such 
a train of reasoning ; we know well enough that a loaf is not worth 
more than a hat, but that the opposite is the case. The merest, 
nay, the most perfunctory, glance at all the things which make up 
our valuables will sufficiently show us that their value is most often 
not in direct, but far rather in inverse ratio to their rational utility. 
For what are the objects which fill the lowest places in the scale of 
values? Corn, coal, iron, water (if the last named, indeed, can 



WEALTH AND VALUE. 49 

receive any value), the very objects which answer to men's most 
essential wants, and for lack of which they would be bound to 
perish ! What, then, are those which occupy the most exalted 
stations in this hierarchy of values ? Gold, diamonds, lace, perhaps 
a broken piece oi faience in some collection, or an edition of some 
old book which no one has ever read, or will ever read ; that is to 
say, the objects which serve only to satisfy our curiosity or to 
flatter our vanity. However, it might be rejoined that if instead 
of comparing a diamond and a bushel of corn as particular bodies, 
we were to draw a comparison between diamonds and corn as 
kinds, our conclusions would be different. It is evident that 
though an individual would not hesitate to prefer a diamond to a 
bushel of corn, yet the human race, or indeed any people, were 
they compelled to choose, would not hesitate to prefer corn to 
diamonds ; and as a matter of fact, the total value of the corn cir- 
culating in the world is far higher than the total value of the dia- 
monds. That simply shows that for value, just as for wealth, there 
is a social or general point of view which differs from the indi- 
vidual point of view. But it is this individual point of view which 
alone concerns each one of us ; we have never to buy or sell any 
but concrete objects. The total value of corn or of any other 
commodity in the world interests no one but the statistician. 

Let it not be said that matters take this course because men are 
senseless, and that if they were wise their preferences would be 
dictated by reason, and the scale of values would coincide with the 
scale of utilities. Firstly, it is no use inquiring into what men's 
preferences should be in this matter ; the value of things is deter- 
mined by what men actually desire, and not at all by what they 
ought to desire. Moreover, the objection is groundless. It may be 
correct to say that men are wrong in attributing too high a value 
to trifles, but no one could assert that they err in ascribing no 
value at all to a glass of water; were the whole earth peopled 
by none but wise men, the value of water would certainly be not 
a farthing the more. 

Let us put our question again, and try to find another answer. 



50 PRINCIPLES OF POLITICAL ECONOMY. 

Here are a loaf and a garment ; what makes us prefer one to the 
other? However httle we may reflect, we shall not hesitate in 
replying, " It depends upon circumstances." Man's wants cannot 
be placed in an invariable order like the seven prismatic colors ; 
they are incessantly changeable, and sometimes one, sometimes 
another, comes to the front. If we are hungry, we shall prefer the 
loaf; if we are well filled, but feel cold, we shall choose the gar- 
ment. If we are neither hungry nor cold, we shall think of future 
rather than of present wants, and shall decide our action by the 
following considerations. If our larder is well provisioned, we 
shall choose the garment ; if our wardrobe is amply supphed, our 
choice will fall on the loaf. In fine, other things being equal, we 
shall always prefer that one of the two objects with which we are 
the less well provided. 

Why do we argue in this fashion? for the very simple reason 
that no one of our wants is unlimited, and when we have enough 
wealth to satisfy it, we have no motive for desiring any more of 
the commodity. Of what use would a surplus be? We should 
not know what to do with it. Perhaps it may be said that we 
should always be able to dispose of it, and, as a matter of fact, 
people are not often seen to refuse any article of wealth because 
they have got enough of it. Gn the contrary, we consider it a 
wise plan always to accept. True enough ; but only when others 
have need of that commodity of which we have too much, and 
when we therefore know that we shall be able to dispose of it 
profitably. The circumstance that certain men are not sufficiently 
provided with this commodity estabhshes that it is desired by 
them, and that it therefore acquires some value. But if it exists 
in such a quantity that each man is sufficiently provided with it, 
it is clear that no one will want more of it, either for himself, for 
he would not know what to do with it ; or to dispose of it to 
others, for he would no longer find any purchasers. 

If^ as we have shown, value has desire as its foundation, it can- 
not exist where there is satiety ; for desire, then, is also absent. 
Each of man's wants requires a certain quantity of wealth, but not 



WEALTH AND VALUE. 5 I 

an unbounded quantity; there is a limit to it. As long as the 
limit is not reached, the desire subsists, though the nearer it is 
approached, the weaker does the desire become, and value sub- 
sists and decreases together with it. As soon as the Hmit is 
reached, the desire is extinguished and the value vanishes at the 
same moment. It is even possible, as Jevons very subtly remarks, 
that when once this limit has been passed, the desire we have for 
the thing is converted into repulsion. It is just like those series, 
so well known to mathematicians, which diminish as far as zero, 
and then begin to increase below zero, but with a negative vake. 

Limitation in quantity, or scarcity, comes then after utility and 
along with it as the decisive reason for our preferences. If scarcity 
holds such a place in our decisions, we ought not to wonder at it 
or regard it as the effect of some caprice similar to that of a col- 
lector-maniac, who seeks for a rare article purely that he may be 
able to say that he is its only possessor. By no means ; if limi- 
tation in quantity constitutes the reason for value, — that is, because 
it is itself a consequence of the physical and moral nature of man, 
— its foundation rests on that physiological and psychological law 
according to which every wmit is limited. This doctrine was first 
taught by Condillac in his fine work Le Commerce et le Gou- 
vernement (1776) ;^ but it has been taken up again and most 
ingeniously developed by Stanley Jevons in his Theory of Political 
Eco7ioi7iy (1871). 

But limitation in quantity is not itself an absolute fact. There 
is not a thing in the world, even among products of nature, and 
ia still larger measure, among the products of human industry, the 
quantity of which is so rigorously fixed that it cannot be increased 
by the expenditure of some effort. When we say that diamonds 
are rare, we do not mean that nature has put into circulation only 
a fixed number of specimens and has then destroyed the mould ; 

1 e.g. ch. I. " Abundance, superabundance, and scarcity dwell rather in 
our opinion about quantities than in the quantities themselves; but they dwell 
in the opinion, only because they are supposed to dwell in the quantities." — 
J.B. 



52 PRINCIPLES OF POLITICAL ECONOMY. 

we merely mean that it requires much trouble or much luck to find 
more of them, and that therefore the existing quantity can be 
mcreased but with difficulty. When chronometers are said to be 
rare, it is not meant that between the ends of the earth there only 
exists a fixed amount of numbered samples : an unbounded num- 
ber can be produced. But, as the construction of a good chro 
nometer requires considerable time and special skill, the quantity 
is limited by the available time and labor. It is not probable that 
in France there are fewer trousers than waistcoats ; yet trousers 
may be said to be rarer than waistcoats. For as they require more 
material and more time for their making, the former of these gar- 
ments are not so easy to multiply as the latter, and for this very 
reason are generally dearer. The limitation in quantity or the 
scarcity of any commodity depends, then, solely on the greater or 
less difficulty experienced in obtaining it. 

It is easy now to explain why air and water have no value. Yet 
are they not especially useful articles ? Undoubtedly, in the sense 
that they answer to the most imperious of wants ; but, however 
useful they may be, they are not desired ; for their abundance is 
such that we have always enough of them, and to renew our sup- 
ply, if we need air, we have but to open our mouths and draw in a 
breath ; if water, to bend over the brook and drink. Then who 
troubles about a glass of water in such countries as ours? We 
have always enough and to spa?'e, as is capitally said. For one 
lost, we can find ten to replace it. It is true that if we were in 
the desert, in " the land of thirst," or in a place where a glass of 
water was not easily procurable, it might become a highly desirable 
article ; but then, too, it would be capable of acquiring a value 
which might be said to be unbounded, and higher than that of any 
other object in the world. And why so? precisely because on 
such an hypothesis the supply of water would be found to be 
insufficient. If in our part of the earth water has generally no 
value, it is as drinking-water, with regard to its use for quenching 
the thirst ; for from that point of view it is superabundant. But 
when it is required for purposes of irrigation or for pleasure, or as 



WEALTH AND VALUE. 53 

a motor force, it usually has some value, and even a considerable 
one. Why? because for such uses it does not exist in large 
enough quantities to satisfy the wants of proprietors ; hence it is 
rendered desirable and receives a value. 

In the same way we can explain why diamonds or fine pearls, 
which answer to such futile wants, take so high a place in the scale 
of values. It is because their quantity is so very small that the 
immense majority of mankind possess none of them, though they 
desire them keenly (I speak at least of the feminine half of the 
species), and that even the favored owners are not usually so well 
provided with them as not to be able to desire more. That limit- 
ing point where satiety begins and desire dies is never reached 
with this kind of wealth. But if chemistry ever succeeds, as it 
reckons on doing, in converting carbon into diamonds, then as 
each man would be able to obtain as many of them as he wished, 
the desire would fall to zero and drag down the value in its fall. 
Even if the existing quantity was not destined to be considerably 
modified, yet the mere possibility of increasing that quantity at 
will would serve to chill desire and keep down value. 

To recapitulate : we can answer, in the following manner, the 
question, "What is the cause of value?" 

Things have more or less of value according as we desire them 
more or less keenly^ 

We desi?'e them more or less keenly according as their quantity 
is more or less insufficient for our wants. 

Their quantity is more or less insufficient according as it is in 
our power to multiply them more or less easily. 

We may add that an excellent criterion for measuring the utility 
of a thing may be derived from a consideration of the degree of 
suffering or of annoyance that we should receive fro7n the priva- 
tion of a small portion of this thing. According as this suffering 
is nil or slight or intense, the utility of the thing in question will 
be nil or slight or very great. Take the utility of water. Does 
the reader reply that is great, nay, incalculable ? By no means ; 
for consider the suffering that will be entailed by the privation of 



54 PRINCIPLES OF POLITICAL ECONOMY. 

a glass of water ; it is absolutely nothing. The value of water, 
therefore, is likewise nought. Similarly, the value of bread can be 
shown to be very slight. 

This theory, which has recently become celebrated under the 
name of final utility or limited utility, and which is taught by 
most economists, e.g. Jevons, Walras, and Menger, seems to have 
been discovered in 1854 by Gossen, a German writer, whose book 
on the subject was long utterly unknown, or perhaps even before 
him by Dupuit, a French engineer.^ 

III. Critical Examination of the Various Theories of Value. 

Economists have always sought for the causes of value, and 
each school, according to its respective tendencies, has fastened 
on to one or other of them. Utility, scarcity, difficulty of attain- 
ment, and labor are the principal ones which have been specially 
pointed out as the real cause or causes. 

Utility has often been put forward as sufficient in itself to ex- 
plain value, and therefore rendering unnecessary an attempt to find 
other causes. The chief exponents of this have been Condillac, 
J. B. Say, and Stanley Jevons. To the obvious objection that 
many very useful things have no value, this school replies that 
utility cannot be conceived apart from a certain limitation in 
quantity, and that to speak mathematically, it is necessarily a 
" function " of quantity. If a thing is in excess, e.g. water, no por- 
tion of it (say a glass of water) can be said to be useful ; it is 
not useful, for no one thinks aught of it. What is superabundant 
is necessarily superfluous, and what is superfluous is necessarily 
useless. This doctrine comes very near the truth, and, indeed, 
closely resembles the opinion we have set forth. Yet we must 
observe that by employing the word "utility" in a somewhat dif- 
ferent sense from its ordinary acceptation, and by attributing to it 

1 Gossen was only one out of a number. See Jevons' Political Economy, 
Preface and Supplement to second and later editions. For the relation of 
Jevons to the Austrian Economists (who avoid the use of Mathematics), see 
the Harvard Quarterly Journal of Econot?iics, October, 1888. — J. B. 



WEALTH AND VALUE. 55 

many things it does not mean, this doctrine forces language and 
seems to turn on the point of a verbal ambiguity. 

The mathematical school — for instance, M. Walras — gives the 
preference to scarcity ; for here this school finds that especial 
advantage for those who wish to introduce mathematical methods 
into economic science, the being able to base the theory of value 
on the mathematical idea par excellence, the idea of quantity. 
Scarcity is limitation in quantity, but, they add, it also implies 
utility ; for does not calling a thing scarce mean that it is sought 
for and consequently is useful? If it served no purpose, no one 
would want it ; and, if no one wanted it, it could not be said to be 
sc.irce were it otherwise unique ; as, for instance, a letter written by 
a peasant who had never written but one in his whole life. 

We must reply, however, that the idea of scarcity is not strong 
enough to stand alone unless we read into this word many things 
it does not say ; for, to use a well-known example, cherries are no 
less scarce in July than in May, but as they are not then early 
fruit, i.e. are no longer desired, their value is gone. 

The classical school in England preferred to choose difficulty of 
attainment ; certainly the amount of difficulty that we experience 
in procuring a thing is a condition of its value, but it is by no 
means the cause. Corn draws its value, not from the circumstance 
that it requires long labor and exhausting work, but from the fact 
that we suffer hunger and that this grain is especially fitting for 
our nourishment. The amount of difficulty that we experience in 
producing corn only acts upon its value in the proportion in which 
it affects our satisfying of our hunger. 

Finally, another school teaches that labor is the real cause of 
value. This theory, which has been set forth in rather varied 
forms, has now some position in the science ; first expounded by 
Ricardo, it has gathered round its standard economists of the most 
opposite schools from Bastiat to Karl Marx. 

In reality, this theory does not deny that utility — that is to say 
the property of satisfying any human want or desire — is the primor- 
dial condition of all value. Of course we should have to have lost 



$6 PRINCIPLES OF POLITICAL ECONOMY. 

our senses before entertaining the idea that a thing which is of no 
use can have any value, whatever amount of labor it may have 
entailed. But according to this school, if utility is the condition 
of value, it is not its cause or its measure. The basis of value, 
according to Ricardo, its substance, according to Karl Marx, is 
man's labor, and each thing has more or less worth according as 
it has required more or less labor. 

The cause of this theory attracting so many generous minds is, 
that differing from the preceding group, which rests value on a 
purely natural fact, utility or scarcity, it grounds value upon a 
moral act, — labor. Could it be proved that the value of all our 
possessions, e.g. land, is in proportion to the labor they have cost 
us, we might be justified in concluding that every man's property 
or fortune is in direct ratio to his labor, and thus the social organi- 
zation would be firmly seated on a principle of justice. Yet this 
doctrine, like Joseph Prudhomme's legendary sword, may be used 
to combat existing institutions as well as to defend them. While 
the school of Bastiat employs it to show that each man's fortune 
is proportional to his labor, Karl Marx's followers, on the other 
hand, seek to prove by its aid that the values possessed by the 
wealthy classes are due entirely to the labor of the workmen who 
have been basely robbed of them ; thence the conclusion is drawn 
that these values must be returned to those who have created 
them. 

The theory certainly contains a portion of the truth. No .one 
disputes that the labor necessary for the production of things has a 
considerable influence on their value, and this follows from the very 
circumstance we sought to explain in our analysis of value. We 
agreed that value ultimately depends on the greater or less facihty 
we experience in multiplying things ; now, as labor is the principal 
factor of production, it is clear that the degree of facihty we have 
in multiplying things will in the ultimate analysis depend on the 
amount of labor they require for their production. 

But it follows from this very train of reasoning that labor can 
act on the value of things only indirectly, and purely as regards 



WEALTH AND VALUE. 57 

quantity. Of itself it has no influence on value, and this is shown 
clearly enough by facts that can be noticed every day. 

1 . If the value of a thing had for its cause or substance the labor 
expended in its production, this value would necessarily have to 
be immutable ; for, as Bastiat himself grants, " Past labor is not 
susceptible of increase or decrease." Now we know, on the con- 
trary, that the value of an object varies constantly and ceaselessly.; 
it is evident, then, that these variations are absolutely independent 
of the labor of production. For a priori reasons, moreover, it is 
absurd to think that the value of a thing can thus depend on a 
fact which is over and done. The matter is finished, there is no 
harking back to it, and we must say, like Lady Macbeth, " What 
is done cannot be undone " ; let us speak no more of it. 

2. If labor were the cause of value, equal values would always 
correspond to equal labors, and unequal to unequal. Now every 
moment we see objects which have cost the same amount of labor 
selling at very different prices {e.g. a fillet of beef and the tongue 
or the tail of the same ox) ; and inversely, objects which have 
required far different amounts of labor selling at the same price 
{e.g. one gallon of wine produced on an estate which yielded i8o 
gallons per acre, and one gallon of wine of the same quality pro- 
duced on an estate which yields 1800 gallons per acre). Ricardo 
did not deny this fact, for on it he based his famous theory of 
Rent (see below, "Distribution") ; but the explanation he gives 
merely establishes the incontestable fact that two objects of the 
same quality, i.e. of the same utility, have necessarily the same 
value, however unequal be the respective amounts of labor they 
have cost. 

3. If labor were the cause of value, where there had been no 
labor there would be no value. Now there are innumerable things 
which possess a value, and often a very high one, without having 
required any labor ; such as a spring of mineral water or petro- 
leum, guano deposited by sea-birds, a sandy beach in the south 
of France which has been ploughed only by the wind from the 
open sea and which is sold at a very high price for the plantation 



58 PRINCIPLES OF POLITICAL ECONOMY. 

of vines, a few yards of ground in the Champs-Elysees, etc. Nor 
do Ricardo and his school deny (for the fact is not capable of 
denial) that there are certain objects " whose value depends only 
on scarcity, since no labor can increase their quantity." Yet he 
considers these to be insignificant, and only gives as examples 
valuable pictures, statues, etc. In reality, these objects form an 
enormous body of exceptions and nullify the rule. 

4. Lastly, if labor is the cause of value, what is to be the cause 
of the value of the labor itself? For labor has certainly a value ; 
it is bought and sold, or, if the term is preferred, is hired every 
day at a certain price. It is easy to explain the value of labor by 
the value of its products, just as the value of a piece of land is 
determined by the value of the crops it can yield. But if we 
explain the value of products by the value of the labor which has 
formed them, we but argue in a circle whence there is no exit.^ 

Ingenious attempts have been made to fit in this theory with the 
various difficulties of fact which we have just pointed out. 

Carey says that the value of any object depends, not precisely 
on the amount of labor expended in its production, but on the 
labor necessary to produce a similar object; i.e. the labor of 
repj'oduction. 

Bastiat says that the matter to be considered is not the labor 
done by the person who has produced the object, but the labor 
spared the would-be acquirer. As, according to Bastiat, the 
sparing a person of a certain amount of labor is to render him a 
service, the author of the Harmonies proceeds then to define value 
as the relation between two services exchafiged, and to declare that a 
service rendered is the cause and the measure of value. This for- 
mula, in spite of its popularity for some time, is a pure tautology. 
To the question, "Why has a diamond a greater value than a 
pebble?" it answers, "Because when I am handed a diamond, a 
greater service is done me than when I am handed a pebble." 

^ There is a full discussion of the " Labour theories of Value " in Dr. Bohm- 
Bawerk's book on Capital and Interest, Vol. I. (English translation by 
W. Smart, 1890), pp. 297 seq. — J. B. 



WEALTH AND VALUE. 59 

No one disputes so puerile a proposition, but it is enough to 
reply, that if the service rendered by the transfer of a diamond is 
greater than that rendered by the transfer of a mere pebble, it 
follows simply from the diamond possessing a greater value than 
the pebble. So we have only reversed our position. In reality, it 
is not the service rendered by the person who yields me the object 
that determines its value ; but it is the value of the object yielded 
which determines and measures the importance of the service 
rendered. See in the Revue d^economie politique, May-June, 
1887, an examination we have made of this theory. 

Karl Marx declares that we have no concern with the individual 
labor which may have been expended in producing any object, 
but must deal with the social labor, or, rather, the average labor 
necessary for the production of this commodity in general. 

These various theories cannot be discussed here ; we shall con- 
fine ourselves to remarking that all these theories derived from the 
idea of labor conflict more or less with the same difficulties as the 
fundamental theory, and that they lack the merit which it pos- 
sessed of satisfying the idea of justice. We have agreed that 
there would be harmony if it could be proved that the value of an 
object is proportional to the amount of effort that must be expended 
for its production ; but this harmony vanishes or becomes very 
doubtful if we content ourselves with showing that the value of an 
object is only proportional to the labor necessary for reproducing 
a similar object (as Carey says) ; or to the efforts that must be 
made to procure a like object (as Bastiat says) ; or to the average 
amount of labor required- for the industrial production of this 
class of objects (as Karl Marx says). 

To recapitulate : the numberless theories which have been pro- 
pounded for the explanation of the phenomena of value may be 
divided into two distinct groups or tendencies. 

The one is bound up with the idea of utihty, and rests value on 
man's wants ; the other is bound up with the idea of labor, and 
rests value on man's efforts. 

The first is, in our opinion, the expression of what is ; in fact, 



6o PRINCIPLES OF POLITICAL ECONOMY. 

the value of things is proportional to our wants or desires. The 
second is the expression of what should be ; in point of equity it is 
to be wished that value might be proportional to our efforts or labor. 
It would prove us to possess an unscientific mind if we were 
to think that the natural law of values can ever be changed ; but 
we are not debarred from hoping that in spite of or by means of 
this law we may succeed some day in making fact more conform- 
able with equity ; that is to say, in rendering value more and 
more proportional to labor. 

IV. Variations in Value. 

That imaginary list on which we supposed all articles of wealth 
to be ranged in order of preference has, we are aware, no stability 
about it. The value of each thing — I mean its place relatively 
to the others — constantly varies. The reason for this is evi- 
dent ; for value springs from our desires, and what could be more 
changeable than they are? Even granting that we are dealing 
with some physiological want, such as the need of food, yet, since 
there is an infinite variety of objects capable of satisfying that 
want, our desire can turn from one to another, and can make all 
of them in turn ascend or descend on the scale of values. 

Can we trace any general principles or laws which regulate 
these movements ? We can ; and such an investigation is of the 
greatest interest. If, as we have previously said, utility and 
limitation in quantity are the two elements of value, the moving 
springs of our desires, it follows that, if both or one of these 
elements happen to vary, value will necessarily vary. 

Firstly, If the utility of a thing constantly increases, its value 
will increase in like manner. This is the case with land, whether 
a building site in town, or cultivable ground in country, the 
utility of which increases regularly in proportion as a growing 
society has need of more room and more food. Therefore the 
value of ground, except in temporary crises, is in a state of 
constant progression. 



WEALTH AND VALUE. 6l 

Secondly, When, on the contrary, the utility diminishes, other 
things being equal, value must fall. This is the case with the 
precious metals, and especially with silver, which daily loses in 
value, not only because the more refined taste of the present day 
does not require it so much in the shape of plate or jewelry, but 
mainly because the improvement in instruments of credit gradually 
impairs its utility as money. 

Thirdly, When the quantity increases, other things being equal, 
value must diminish. This is the case with manufactured products, 
which machinery enables us to multiply daily with growing ease. 

Fourthly, When the quantity diminishes, other things being 
equal, value must increase. This is the case with game, which, 
after having formed the usual food of man when societies were in 
their infancy, has so diminished in quantity, in consequence of 
the opening up and the putting into cultivation of land, that in all 
civilized countries it is nowadays merely an article of luxury 
reserved for the table of the rich. The same, perhaps, will happen 
some day with butchers' meat ; for in every civilized country the 
same causes are tending to restrict more and more the amount of 
land devoted to the pasturage and the breeding of cattle, and con- 
sequently, the quantity of cattle in proportion to the population. 
Of all commodities, it is meat which rises the most rapidly in price. 

But besides these variations that we might call secular, because 
in the course of ages they slowly and uniformly displace articles 
of wealth in the scale of values, and which will be more easy to 
understand after we have studied the laws of production, there 
is another class of variations to which every value is subject : 
these might better be styled oscillations, for they recur after short 
intervals, sometimes in one direction, sometimes in another. Ex- 
pressed in terms of money, they can be read in the variations of 
the market rates of commodities as they are daily quoted in the 
newspapers. These variations, though perhaps less interesting for 
the economist, are of far more consequence to the business man 
and the manufacturer, for on these depend their profits or their loss. 



62 PRINCIPLES OF POLITICAL ECONOMY. 

For instance, fish has what may be called a normal value, re- 
sulting on the one hand from the utility of this food, that is to 
say, from the degree of taste that consumers have for this kind of 
nourishment; and on the other hand from the limitation in its 
quantity, according as the country has a larger or smaller coast- 
line, according as its seas are better or worse stocked with fish, 
and according as a larger or smaller number of its inhabitants 
devote themselves to this particular fishery. But, over and above 
this normal value, itself a variable one, yet varying but slowly and 
then generally in the direction of a rise, the value of fish when in 
the market is liable to a host of temporary variations. Thus on 
fast days in Catholic countries fish rises in value, acquiring on such 
days a new utility on account of the decrees of the Church, which 
permit no other animal food. Inversely, its value will fall if the 
haul has been especially abundant. 

These oscillations are usually said to be regulated by the law 
of supply and demand. This celebrated formula was for long 
regarded as the fundamental law of political economy, and was 
employed to explain any sort of phenomenon. Since then, how- 
ever, it has been much criticised and has incurred some discredit. 

In its most simple sense this formula means : the price of every 
commodity in a market depends on the relation which exists 
between the quantity offered by the sellers and the quantity de- 
manded by the buyers. If the demand is greater than the supply, 
the price rises ; if the supply is greater than the demand, the 
price falls. In this sense the proposition is evident. But, really, 
this formula contains nothing more than the two elements of value 
we are already acquainted with, viz., utility and scarcity, regarded 
as acting at a fixed time and place. It is clear, then, that the 
larger or smaller quantity of goods that the sellers may offer in 
the market constitutes what we have called scarcity, whilst the 
larger or smaller quantity demanded by the consumers depends 
on the degree of intensity of their wants or desires ; in other 
words, on the degree of utiHty that the particular commodity may 
possess for them. This proposition does not throw any great light 



WEALTH AND VALUE. 63 

on the explanation of phenomena, but it has the advantage of 
including some rather complex ideas in a short and simple for- 
mula. Nothmg more than this must be sought from it. People 
have discredited it just through ascribing to it a precision it does 
not admit of. 

For example, it has been erroneously expressed in the following 
mathematical formula : " Value varies in direct ratio of the quan- 
tities demanded, and in inverse ratio of the quantities offered." 

This means to say, that if the demand is doubled, then, the 
supply remaining the same, the value will be doubled ; and that, 
inversely, if the supply is doubled, then, the demand remaining 
the same, the value will be reduced by half. In such terms as 
these, the proposition is absolutely false, as was long ago proved 
by John Stuart Mill and by Cournot. 

People forget that though supply and demand act on value, 
yet value, in its turn, reacts on supply and demand, and tends 
to re-establish that equilibrium between them which had been 
momentarily disturbed. When demand exceeds supply, value 
certainly rises ; but the very result of this rise in value is to reduce 
demand from the side of the buyers, and to increase supply from 
the sellers ; so that the quantities suppHed and demanded are not 
long in regaining their equality. The simplest observation is 
enough to prove this. Let us take some stock on the Bourse, — 
say the three per cents, — and let it be at 95. Continually a cer- 
tain quantity of government stock is offered, and a certain quantity 
demanded. At the opening of the Bourse, suppose the stock 
lemanded to be double the figure offered. Who would be so 
foolish as to imagine that the price of the stock ought consequently 
to be doubled, and rise to 190? Yet that is precisely what ought 
to occur if the above formula was correct ; but in reality the price 
of the stock may not rise in the least, and that for the very simple 
reason that by far the larger number of the would-be purchasers 
at 95 withdraw when the price rises. It is clear that if the amount 
of stock demanded diminishes in proportion to the rise in price, 
at the same time, and for the same reason, the amount offered 



64 PRINCIPLES OF POLITICAL ECONOMY. 

increases. A moment, then, will necessarily come when the de- 
creasing demand and the growing supply will become equalized ; 
and at that moment equilibrium will be re-established. A rise of 
a few pence is generally sufficient to bring about this result. 

Inversely, it is not impossible, in certain exceptional cases, for 
supply and demand to entail far more than proportional variation 
in value. Gregory King's Law, established two centuries ago by 
numerous observations on the price of corn in England, showed 
that the shghtest variation in quantity caused more than propor- 
tional variations in price. Thus, if the crop was diminished by 
half, the price per bushel was multiplied almost by five. 

However, this law has now lost almost all its importance, in 
consequence of international trade in cereals. We have to remark, 
indeed, that, thanks to that system of exchange which brings 
together in one market the produce of countries situated on all 
the zones, not only is the bad harvest of one land compensated 
for by the good harvest of another, but also the production of 
corn, instead of being intermittent, becomes continuous ; for there 
is not a day in the year, so to speak, on which harvesting is not 
going on in some portion of the globe. 

V. The Effects produced on Value by Competition. 

When each individual in a country is at liberty to take the 
action he considers the most advantageous for himself, whether as 
regards the choice of an employment or the disposal of his goods, 
we are said to live under the regime of co^npetition. 

This regime, under which at the present day nearly all civilized 
societies live, exercises a decisive influence on all economic phe- 
nomena, and especially on value. 

As far as regards value, competition has the following effects : — 

Firstly, It tends to equalize the values of all similar products. 

Desires and wants being different in the case of each man, it 
would follow that the same object ought to have a particular value 
for each individual; that, for instance, in a corn market there 



WEALTH AND VALUE. 6$ 

ought to be as many different prices as there are buyers. But 
competition prevents the accompHshment of such a result ; in 
reahty, in our corn market there will be only one price for all the 
sacks of corn. Why ? Because if a particular one of the buyers 
chanced to offer for a particular sack a price higher than that 
current in the market, all the sellers would hasten to offer him 
their sacks at a lower price, and would compete with one another 
till the price had fallen down again to the general level. Inversely, 
if a seller agreed to dispose of his sack below the market price, 
all the buyers would press round him and outbid one another, till 
the price had been forced up again to the general level. Stanley 
Jevons calls this law, which states that there is never but one price 
for objects of the same quality, the law of indifference. By this 
he means that all the objects being, according to the hypothesis, 
of the same quality, buyers have no motive for preferring some to 
others, and that in this state of indifference the slightest variation 
in value is enough to provoke outbiddings in one direction or 
the other, which would restore the equilibrium. 

Secondly, It tends to restore the value of all products to a 
minimum level, determined by the cost of production. 

When we come to production, we shall see, that to produce 
any article of wealth a certain quantity of wealth must necessarily 
be consumed. The value of the wealth produced is as a general 
rule higher than that of the wealth consumed ; for, if it were 
otherwise, the producer would incur a loss. Unless, then, the 
unexpected comes to pass, there will always be a difference, or 
a margin, between the two values ; and it is this very difference 
which constitutes the profits of the enterprise. 

It is clearly to the interest of the producer to extend this margin 
as much as possible, by trying either to lower the value of the 
wealth consumed (raw material, wages, etc.), or to raise the value 
of the wealth produced. But the competition of the producers 
acts in just the inverse direction ; the buyers, vying with one 
another, each producer strives to attract them to him by reducing 
as much as possible the margin between the cost price and the 



66 PRINCIPLES OF POLITICAL ECONOMY. 

selling price, until that minimum limit is reached beneath which 
it would be no longer worth while to produce. There is a wide- 
spread notion that the cost of production and value stand to one 
another in the relation of cause and effect; in other words, that 
things possess a value on account of their particular cost of pro- 
duction, and that this value is always determined by this cost of 
production. This is altogether a sophism. 

True enough, under the action of that external cause which is 
called competition, value and cost of production bear a constant 
relation one to the other ; but it is not correct to say that cost of 
production determines the value of the product. On the contrary, 
it would be more correct to say that if is the value of the product 
which determines the cost of production. Before incurring any 
expenses in the production of a thing, every producer first asks 
himself, "What will be the value of the product?" If he con- 
siders that this value will be enough to cover the expenses and 
leave him a margin of profit besides, he ventures on the enterprise. 
In the opposite case, he refrains. 

If he happens to err in his predictions, it will be so much the 
worse for him ; and all the expenses he may have incurred will 
not be able to raise the value of the product a farthing above the 
value determined by the law of supply and demand. 

Moreover, it is a petitio principii to say that the cost of produc- 
tion is the cause of the value of things. For, as the cost of pro- 
duction is, as we have seen, nothing but the value of the wealth 
consumed in the course of production, such a train of argument 
would merely explain value by value. 

The cost of production may greatly vary, not only, as is obvious, 
for different products, but also for products of the same sort. 
From the latter circumstance arises an economic problem which 
is sufficiently remarkable, and the solution of which is extremely 
important. 

Let us consider some hundreds of sacks of corn offered for 
sale in a market. It is evident that they have not all been pro- 
duced under identical conditions. Some have been raised by 



WEALTH AND VALUE. 6/ 

means of manuring and labor ; others have grown almost sponta- 
neously on fer^tile soil. These hail from San Francisco, and have 
doubled Cape Horn on their way; those come from the next 
farm. If, then, each sack was to have fixed on a ticket its own 
pecuhar cost price, there would, perhaps, not be two on which 
the same price could be read. 

Let us suppose, for instance, that these cost prices ranged from 
10 to 20 shillings. 

Under these conditions what will be the market price? will it 
be equal to the cost price of the sack which cost the most, or of 
that which cost the least, or of some intermediate sack ? Will it 
be fixed at 20 or 10 or 15 shillings? In other words, will the value, 
on this hypothesis, be regulated by the maximum cost of produc- 
tion, or by the minimum^ or by the average ? Here we must draw 
distinctions. 

If we are speaking of products which cannot be multiplied at 
will, or only in a very restricted measure, — and this is just what 
occurs with corn, — the market price will have to be regulated by 
the cost price of the sack which has been the most expensive to 
produce, 20 shillings in our example ; that is to say, the value is 
regulated by the maximum cost of production. For if we suppose, 
as we are bound to do, that all the sacks in the market are abso- 
lutely necessary for the food- supply, and that none of them can 
be dispensed with, we shall certainly have to make up our minds 
to pay a price high enough for none of these sacks to have been 
produced at a loss ; for if any one of them was so circumstanced, 
its production would be discontinued, and thence there would be 
a deficit in the supply of corn. 

If, on the other hand, we are speaking of products which can 
be actually or virtually multiplied at will, — e.g. yards of cotton- 
stuff, or hundreds of nails, — the market price would probably fall, 
if not all at once, at any rate after a short time, to the level of 
the lowest cost price ; that is to say, the value tends to be regu- 
lated by the minimum cost of production. In fact, it will be to 
the interest of the producer whose cost price is the lowest to profit 



68 PRINCIPLES OF POLITICAL ECONOMY. 

by his privileged position to lower his prices to a limit very neai 
to his cost price, in order to undersell his competitors and extend 
his sale as much as possible. If he happens to be of sufficient 
weight to supply the market by himself alone, his less-favored rivals 
will have nothing to do but disappear : there is no further need of 
them. 

To recapitulate : Whenever we are dealing with a product which 
cannot be multiplied at will, it is the maximum cost of production 
which determines the market value. 

Whenever we are dealing with a product which can be multiplied 
at will, it is the minimum cost of production which determines the 
market value.^ 

VI. Whether Competition is Cheapness. 

There is a very wide-spread notion that competition always pro- 
duces cheapness, and monopoly deamess. Thus, competition is 
considered by the public to be a power which is beneficent, demo- 
cratic, and always conducing to the general welfare, whereas monop- 
oly is regarded as a pubhc scourge. Many people even think that 
all political economy can be reduced to this axiom. Yet it is 
not an absolute truth. 

Undoubtedly the ordinary effect of competition, as we have seen 
in the preceding chapter, is to lower the value of products to the 
level of the cost of production, which is advantageous for the 

public. 

But competition, after passing a certain hmit, may produce a 
precisely inverse effect. If it raises up a number of producers or 
middlemen out of proportion to men's wants, — e.g. two or three 
railway lines where one would have sufficed, or a hundred bakers 
in a town which was previously content with ten, — then the gen- 
eral expenses increase in considerable proportions ; that is to say, 

1 i.e. if (after what our author has said on page 66) it is right to say that 
'ost determines value at all. — J. B. 



WEALTH AND VALUE. 69 

each single article produced requires for its production a larger 
consumption 7 of wealth (in the shape of wages, raw material, imple- 
ments, sites, etc.), and, the cost of production rising, the value of 
the product rises in a parallel manner.^ 

This does not mean that competition does not bring about here, 
too, its usual effect of maintaining the value of the product at the 
level of the cost of production, by reducing profits. On our pres- 
ent hypothesis, producers are only too well aware that their profits 
are reduced to the minimum ; but the reduction of profits, instead 
of resulting from a fall in the selling price, which would be advan- 
tageous for the public, comes from a rise in the cost price which 
is detrimental to all concerned. (For the inconveniences of a 
multiplicity of middlemen, see below, "Traders," page 176). 

If competition does not necessarily lead to cheapness, it follows, 
a contrario, that monopoly does not necessarily produce dearness. 
It has the disadvantage, it is true, of allowing the producer who 
is invested with this particular monopoly to realize exceptional 
profits, but it may enable him, also, to reduce his prices, through 
economy in his general expenses ; thus a trifling disadvantage 
would be compensated by a great advantage. The equalization 
of incomes is certainly a good thing to aim at, but economy in 
production is better. 

Observe, too, that it is altogether erroneous to imagine that a 
producer who possesses a monopoly has the power of fixing prices 
according to his own will, and that the pubUc must submit to his 
good pleasure. In reality, the value of his products is determined 
by the same laws as every other value, i.e. by the demand of the 
public. As this demand, in obedience to a constant economic 
law, grows in direct ratio to the lowering of prices, it is for the 
most part the monopolist's interest to fix his prices at a very low 
figure, and as near as possible to the cost price, in order to attain 
the greatest possible sale. Such a course is usually pursued by 

1 Even with the explanation which follows, this position seems paradoxical, 
and the views of Value not quite consistent with that of Sect. IV. and V. — 
J.B. 



70 PRINCIPLES OF POLITICAL ECONOMY. 

intelligent producers who hold a monopoly either de jure or de 
facto. To sell cheaply in order to sell largely, and thus recoup 
yourself from the quantity sold, has become the favorite motto 
of present-day commerce. (For this question of jnonopoly read 
Cournot's remarkable chapters, either in his P7incipes mathema- 
tiques de la theorie des richesses or in his Revue Sommaire des 
doctrines econo?mques, 1877.) 

Finally, it must not be forgotten that in certain special cases, 
— notably, every time a monopoly is established by law, — the law 
can fix tariffs ; and thus are obtained the advantages of large pro- 
duction, while the disadvantages of excessive profits are avoided. 
This is done when the working of railway lines is granted to one 
or more privileged companies ; and the results of such a system 
are often far superior to those afforded by competition. 

Thus it is very clear that the tendency of modern industry is not 
towards competition, but towards monopoly, a real monopoly which 
is exercised by powerful companies, which may either work on 
their own lines, or form part of a syndicate. Trade, transport, 
manufacture, mines, are becoming concentrated in the hands of 
large associations, which are in their turn showing a tendency to 
federate as associations of the second degree. Of late years these 
have become well known as Cartels, "Trusts," "Rings," and so 
forth. As a rule they are not favorably regarded by the public or 
by respective governments, and they are often stigmatized as mo- 
nopolists. This severe judgment is well merited when their only 
object is avowed speculation, but as a new form of industrial organi- 
zation they may be of great use by preventing a waste of produc- 
cive power, by making production more regular, by keeping up 
prices, and thus warding off crises and enforced lack of work. 
Still their action will render even more necessary a certain amount 
of State interference. We may refer to Professor Foxvvell's article 
on Monopolies in th.Q Revue d^ economic politique for 1889.^ There 

1 ' Growth of Monopoly,' a paper read to the Economic Section of the 
British Association, 7th Sept., 1888, and translated in the September number 
of \h& Revue d''economie politique (1889), of which Professor Gide is an editor. 
-J.B. 



WEALTH AND VALUE, ^I 

is also a tendency to monopolies exercised directly by the State, 
as in the case of the post-ofifice, telegraphs, railways, banks of issue, 
and by municipahties in the matters of gas and the electric light, 
omnibuses, and tramways. 



CHAPTER III. 

PRICE. 

I. How Value is measured by Exchange. 

Many economists hold it to be an indisputable principle that 
the idea of value cannot be conceived apart from exchange (Stanley 
Jevons even proposes to suppress the term "value," and to replace 
it by " ratio of exchange ") . 

Our analysis, on the contrary, proves that the idea of value pre- 
cedes exchange, both in order of time and in order of importance. 
The idea of value means nothing more than a preference granted 
one thing over another, a comparison, the weighing of two desires. 
The idea, then, is not necessarily bound up with exchange. Rob- 
inson Crusoe had his preferences, but I confess that they were in 
the latent state, and that the conditions of his isolated existence 
were not suitable to reveal them to others, or even to himself. If 
he had been asked to point them out, and to class the articles of 
wealth composing his modest property according to the values 
he ascribed to them, he would have found the task embarrassing. 
At the most, he would have been able to class them roughly in two 
or three groups, according as they corresponded to more or less 
essential wants. Yet we can imagine some occasion which might 
cause this confused and indistinct notion of value to rise suddenly 
out of his inner consciousness, and compel it to take a definite 
shape. Such an occasion, for instance, arose even in the first few 
days after his landing. When he had to rescue each article of 
wealth singly from the ship, which was on the point of sinking (for 
the storm did not leave him time to save all, but only enough to 
rescue some of them), he must have been obliged to make a choice 
and determine which one he preferred to save first. The order in 
72 



WEALTH AND VALUE. 73 

which he successively brought them to land, perfectly showed the 
order of his preferences, and consequently, too, the respective 
values he ascribed to them. 

Let us confess that in reality it is almost solely exchange which 
causes the idea of value to rise from the inner consciousness in 
which, so to speak, it was slumbering, which determines it and 
measures it. In every exchange, and in present-day societies ex- 
changes are innumerable, two articles of wealth are laid side by 
side, and each exchanger weighs in his mind the article he must 
give up and the article he desires to acquire. Though this is not 
the place for us to discuss exchange, — for we shall find it later on 
in dealing with the organization of production of which it is one of 
the principal springs, — yet we ought to show in what way exchange 
determines and measures value. As we know, the value of a thing 
is nothing but the more or less keen desire with which it inspires 
us. But it may be asked. How are desires to be measured ? Just 
like any other force, — by their effects. Now we know that each 
party to an exchange is called upon to make some sacrifice for the 
satisfaction of his desire ; he must give up a certain quantity of 
the wealth he possesses in order to attain what he covets. Clearly, 
the extent of the sacrifice he is disposed to make can serve to 
measure the intensity of his desire. The exchange of ten sheep 
for one ox proves that men, for one reason or another, consider 
an ox to be ten times more desirable than a sheep. 

The keener the desire with which an object inspires us, the more 
distant will be the limit at which we shall consent to part with it. 
The higher the place it holds in the order of our preferences, the 
greater will be the quantity of any other article that must be 
offered us in order to arouse in our minds a desire opposite in 
direction and equal in intensity, and to make the scale turn to 
the side of the latter desire. The expression, then, is perfectly 
correct, that " the value of a thing is determined by the quantity 
of other things for which it can be exchanged " ; or, more briefly, 
that the value of a thing is determined by its purchasing power. 
But we must not say, as is too often done, that it is the purchas- 



74 PRINCIPLES OF POLITICAL ECONOMY. 

ing power which constitutes value. Value is constituted by our 
preferences alone. The purchasing power is only an effect of 
value, just as the power of attraction of an electro -magnet is 
merely the effect of the current which penetrates it. 

If, then, in exchange for an ox I can have 8, lo, or 12 sheep, 
I can say that the value of an ox is 8, 10, or 12 times greater than 
that of a sheep; or, inversely, that the value of a sheep is 8, 10, 
or 12 times smaller than that of an ox. This can be expressed 
thus : " The respective values of any two commodities are in 
inverse ratio to the quantities exchanged." The more of a thing 
that has to be given up, the less is it worth ; the less of it that 
has to be given in exchange for another thing, the more is it 
worth. It is just as in weighing. When the balance is in equi- 
librium, the weights of the objects can be said to be in inverse 
ratio to the quantities weighed. If we have to put ten sheep into 
one scale to balance one ox in the other, that is because the 
weight of a sheep is only the tenth of the weight of an ox. 

II. On the Choice of a Common Measure of Values. 

To obtain a clear idea of size, weight, value, and all other 
quantitative notions, it is not enough to compare objects two at a 
time, as we have just done ; we must compare all things with one 
specific object, which shall always be the same ; we need one 
single term of comparison ; in a word, we require a coi?i7iio7i 
7neasure. For measuring lengths, the term of comparison chosen 
has been some part of the human body, such as a foot, a thumb 
(inch), or a forearm's length (cubit), or a specific fraction of 
the circumference of the globe. For measuring weights, the term 
of comparison chosen in the metric system has been a fixed 
weight of distilled water. For measuring value we must certainly 
take as our term of comparison the value of some object or other ; 
but which are we to choose ? 

It is a remarkable fact that nations have almost unanimously 
agreed in choosing as their measure of values, as their standard, 



WEALTH AND VALUE. 75 

the value of the precious nietals, gold, silver, copper, but especially 
those of the fi;:st two. They have all made use of a little ingot of 
gold or silver, to which they have given the name of franc, pound 
sterling, mark, dollar, rouble, etc. For measuring the value of 
any object it is compared with the value of that small weight of 
gold or silver which serves as the unit of money ; that is to say, 
we try to find how many of these tiny ingots must be given up for 
us to acquire the commodity in question. If, for instance, ten are 
needed, we say that the commodity is worth ten francs, or ten 
dollars, etc. 

Why have the precious metals been taken as the common 
measure of values? Because, as they had already been chosen, 
on account of some remarkable properties, to act as instruments 
of exchange (for the reasons which have caused the precious 
metals to be chosen as instruments of exchange, see pages 
186-187), and as exchange is, as we have shown, the very 
transaction which serves to measure values, the precious metals 
were naturally marked out to fulfil this high function. Yet these 
two functions, although always confounded in practice, are theo- 
retically quite distinct, and could, indeed, if we wished, be per- 
fectly well separated (see Stanley Jevons on Money). For 
instance, the collectivists, in the social organization which they 
are sketching out, propose to suppress exchange and consequently 
the instrument of exchange, but they never dream of suppressing 
the measure of values ; on the contrary, they propose a certain 
measure of values which would consist of labor notes. Inasmuch 
as these two functions of -money are perfectly distinct, we have 
thought it right to discuss them in two different parts of this work, 
and, though we have been blamed for this separation, we have 
thought it right to retain it as a perfectly logical one. 

However, it is right to recognize that though the precious 
metals are far better suited, by their natural properties, to serve 
as instruments of exchange than as a measure of values, yet they 
possess two special properties which enable them to fulfil this 



76 PRINCIPLES OF POLITICAL ECONOMY. 

second function in a manner which, if not perfect, is at least 
superior to the use of any other imaginable measure of value. 

These two properties are, firstly, their very great facility of 
t7'a7ispor't; secondly, their almost indefinite du7'ability. Thanks to 
the first of these two properties, the value of the precious metals 
is, of all values, that which fluctuates least from place to place ; 
thanks to the second, that which fluctuates least from year to 
year. It is this double invariability (relatively speaking) in space 
and in time which is the essential condition of every common 
measure. 

If the difiiculty of transport could be altogether overcome in 
the case of any one commodity, and if the gift of ubiquity could 
be granted it, the result would be that its value would be practi- 
cally the same in all places. Let its value be supposed to be 
less high in one part of the world than in another ; then men 
would soon come to seek it at this first place in order to transport it 
to the second ; and, as by our hypothesis, the carriage would present 
no difficulty and require no expense, the slightest diflerence in 
value would be enough to make the enterprise a profitable one. 
The equihbrium, if we suppose it to have been broken, would then 
be instantaneously re-established, just as the level is instantly 
restored in the case of a liquid whose molecules are perfectly 
fluid. 

Now, the precious metals being of all commodities, except 
precious stones, those which have the greatest value in the small- 
est volume, they are also those whose carriage is the easiest, and 
whose value, therefore, will the most rapidly recover its normal 
level. For one per cent of its value, freight and insurance in- 
cluded, a mass of gold or of silver can be conveyed from one 
end of the world to the other, whilst the same weight of corn 
would have to pay, according to circumstances, 20, 30, or even 
50 per cent of its value. It might seem to follow from this, that 
save for this one per cent, the value of the precious metals would 
be the same in all parts of the world : yet such a conclusion 
would be considerably too broad ; for it is certain that the value 



WEALTH AND VALUE. 



77 



of the precious metals is not the same everywhere, and that in 
particular it is ^more depreciated in the places where they are 
found and worked, i.e. in mining countries (a fact that explains 
the very high prices prevalent in those districts) ; nevertheless we 
may say that the value of these metals satisfies well enough the 
first condition, viz., invariability in space. 

It compHes far less satisfactorily with the second condition, in- 
variability in time ; yet even from this point of view the precious 
metals are superior to most other commodities for the second 
reason we have given, namely, their very great durability. 

The principal cause of the value of an object fluctuating from 
one epoch to another is the variation in its quantity. If we 
imagine a product to be of such a nature that its quantity is liable 
to vary from zero up to a very considerable figure, the variations 
in its value will be extreme. This is the case with corn. Before 
harvest the granaries may be absolutely empty ; after harvest, they 
will be full, and the difference between a good and a bad year may 
be immense. Hence, too, there are enormous variations in the 
value of this article, and they would be still greater, were it not 
that facility of carriage and international trade brought about a 
sort of equilibrium in production (see above, page 64). But 
because of their durabihty, which enables the same particles of 
metal, coined and recoined over and over again, to pass down the 
ages, the precious metals possess quite other characteristics. 
They accumulate little by little into a huge mass, into which the 
annual production pours as if into a reservoir which is continu- 
ously growing, and in which, therefore, accidental fluctuations 
become of smaller and smaller proportionate amount and impor- 
tance. 

In a headlong torrent the slightest increases in volume are 
manifested by enormous changes of level, but the level of Lake 
Geneva is only raised in imperceptible proportions even by the 
greatest swelHngs of the Rhone. The same holds with values. 
Let the corn crop for one particular year be doubled throughout 
the whole world. Then, as the stock is likewise doubled, the 



78 PRINCIPLES OF POLITICAL ECONOMY. 

deprcciition in prices will be terrible. But let the output of gold 
or silver mines happen to double during one year; then, as this 
output does not, at the most, represent more than two or three 
per cent of the existing stock, the effect produced will be but 
trifling. 

Yet these variations end by being very perceptible in the long 
run ; for at the rate of two or three per cent per annum, the stock 
would become doubled in twenty-four or thirty-six years. If, 
then, the value of the precious metals offers substantial enough 
guarantees of stabihty in time, when short periods only are under 
consideration, it altogether fails in this respect when long periods 
of time are included, say twenty or twenty-five years, not to speak 
of several centuries. In this regard, then, our proposed measure 
of value is extremely defective. 

Could a better one be found ? Well, several have been pro- 
posed as such. Here are a few of the most noteworthy : the 
value of corn, or the wages for a dafs labor ; again, in quite 
another order of thought, it has been proposed to measure the 
value of things by the number of hours of labor necessary for their 
pj'oduction. Let us discuss the respective merits of each of these. 

Firstly, the value of corn. On first thoughts this is a most 
astonishing choice ; for if we consider the value of this commodity 
in different places or at different times, we find not only that it is 
not invariable, but also that there are few values whose fluctuations 
are more marked. At the same moment a bushel of corn may 
be sold for ;^3 loj-. in France, and for ^\ or 30 shillings in some 
of the Western States of America. According as the year is good 
or bad, the value of corn may also vary in enormous proportions, 
though these variations may have been diminished by the facility 
of exchange. 

But it is replied that, though the value of corn is incompar- 
ably more variable than that of the precious metals, when only 
short spaces of time are considered, yet i.: far more stable when 
we extend our observation to long periods. Throughout its 
sharp and numerous oscillations the value of corn would appear 



WEALTH AND VALUE. 79 

to tend always to remain equal to itself; and these would seem to 
be the reasons for such a curious property. 

I. Say its supporters, the utility of corn may be regarded as 
constant ; for, on the average, does not a man always require 
the same quantity of corn as food, to-day as yesterday, to-morrow 
as to-day? Corn, then, answers to a want which is constant and 
always equal to itself, provided that man's physical constitution 
does not undergo radical modifications. Again, its scarcity, that is 
to say, the relation between the quantity produced and the quan- 
tity demanded, should equally be regarded as constant from one 
century to another. That quantity of corn is and will always be pro- 
duced which is necessary to support the inhabitants of a country ; 
for beneath that limit they would die of hunger : but no greater 
quantity will be produced, for above that hmit it would be super- 
fluous, and superabundance would entail an immense depreciation. 
No doubt this equilibrium may be disturbed by the vicissitudes of 
the seasons, but the more violent the displacement, the stronger 
is its tendency to recovery. 

Now if utility and scarcity, the two essential elements of the 
value of corn, as of every other value, can be regarded as con- 
stants, the value of corn itself might be regarded as a fixed point 
whence we might measure all other values. 

Unfortunately, these are mere abstractions. It is not a fact that 
men nowadays eat the same quantity of corn as their forefathers 
did, at least, if we speak of wheat ; nay, they eat far more ; 
for in the last century they mainly lived on cereals of inferior 
quality. On the other hand> it is possible that in the future, if the 
consumption of meat or vegetables increases, the consumption of 
corn may decrease. Even admitting that the utility of corn might 
remain constant, there would still be an element in its value which 
would continue to be variable ; namely, the greater or less ease 
with which we obtain it, whether directly by means of agriculture, 
or indirectly through international trade. 

Nevertheless, from the point of view of its fluctuations in value, 
corn certainly possesses quaUties and defects which are exactly 



80 PRINCIPLES OF POLITICAL ECONOMY. 

inverse to those characteristic of the precious metals. For this 
reason it may be used, side by side with them, as a valuable 
enough means of checking them. 

2. The value of a day's labor ^ choosing the least rejnunera- 
live labor. This theory rests on a double idea i on the one 
hand, that the essential and indispensable wants of human exist- 
ence are the same for each man; on the other, that in every 
society there is a certain class of men who from their wages can 
only just provide for these primal necessaries of Hfe (see Book IV, 
"The Law of Brass"). If these elementary wants represent a 
" constant," the least amount of wages required to satisfy them 
should also represent a constant value. 

But this hypothesis is even more chimerical than the preceding 
one. In the first place, it is not absolutely proved that in every 
society there is inevitably a part of the population which is reduced 
to the bare necessaries of life ; in any case it is clear that these 
bare necessaries are not the same for the serf of the twelfth cen- 
tury as for the French peasant of to-day, the same for the Ameri- 
can laborer as for the Chinese coolie. The one would live and 
have enough to spare on what would but leave the other to die of 
hunger. 

3. The quafitity of labor. This doctrine, which was set forth 
by Adam Smith and Ricardo, has been powerfully developed by 
Karl Marx. 

We must not confound this theory with the preceding one, as 
too many economists have done, with Adam Smith, perhaps, at 
their head. It is one thing to take as the measure of the value of 
objects the value of labor, the price of manual labor, wages, in a 
word, the proposal we were discussing just above. It is quite 
another thing to take as the measure of their value the quantity 
<f labor, the pains taken in producing them, as is the proposal 
now before us. 

The originality of this theory lies in its attempting to measure 
values not by another value, but by a quantity of quite a different 
order; this method, then, is radically different from those we 



WEALTH AND VALUE. 8 1 

have heretofore considered. Its principle is, that between the 
value of any object and the quantity of labor devoted to its pro- 
duction there is a constant relation, so that the one can be meas- 
ured by the other. If, then, we ask how are we to measure the 
quantity of labor itself, the reply is : By its duration, by the 
number of days or hours devoted on an average to this particular 
labor. Thus we light on a very simple common measure. 

This theory is naturally connected with the doctrine which 
regards labor as the cause of value, a doctrine we have already 
rejected. But still the present theory is not, as is generally 
believed, a necessary consequence of the former doctrine. While 
rejecting the idea that labor is the cause of value, we might still 
allow that it can serve as its measure. The theory requires the 
following modifications. 

It can correctly be asserted that men take the more pains in 
producing an object they desire the more ; in other words, that 
they attribute to it a higher value. Just as up to the present we 
have measured the value of things by the sacrifice a person is 
willing to make for their obtainal, i.e. by the amount of money 
given up by the buyer ; so, too, we can measure it (value) by the 
sacrifice of their time and trouble men are willing to make for 
their production. In this sense Adam Smith's fine saying can be 
accepted, — " Labor was the first price, the original purchase- 
money, that was paid for all things." — Wealth of Nations, I, v, 14. 
On this theory, then, labor appears to us no longer as the cause, 
but, on the contrary, as the effect of value, or rather of that desire 
which constitutes value. Now, once admitting that labor is an 
effect of value, nothing could be more scientific than the measur- 
ing of a cause by its effects. Heat is measured by the expansion 
of bodies, starting from the principle that each increase in length 
of the thermometric column must be proportional to each increase 
in temperature. Why not grant likewise that the amounts of labor 
are proportional to the respective natures of the articles ? 

Yet this theory will always encounter two difficulties : firstly, 
that the amount of labor, the amount of trouble taken, is but 



82 PRINCIPLES OF POLITICAL ECONOMY. 

very imperfectly measured by the time occupied ; secondly, that 
even granting that the amount of labor might be gauged by its 
duration, we should still be without any practical means of calcu- 
lating the average amount of time necessary for the production of 
any one article of wealth. (For the development of this objection, 
see in Book IV the chapter " The Different Formulae for the Divis- 
ion of Wealth.") 

III. What is Price ? 

The value of a thing can be expressed in a thousand different 
ways. Homer says that Diomede's armor was worth a hundred 
oxen. A Japanese would have said, a few years ago, that it was 
worth so many hundredweight of rice ; an African negro, so many 
yards of cotton stuffs ; a Canadian trapper, so many fox or otter 
skins ; a Frenchman or an American of the nineteenth century 
will say it is worth so many francs or dollars. Each of these 
expressions indicates in its way a measure of value ; but the 
last only, which measures the value of a thing by the value of 
a certain quantity of pieces of gold or silver, bears the name 
of price. 

The price of an object, then, is the expression of the relation 
which exists between the value of that object and the value of a 
certain weight of gold or silver, or more briefly, its value expressed 
in terms of money ; and as in every civihzed country money is 
the only measure of values, the word "price" has become synony- 
mous with the word " value." Indeed, it is the only expression 
for value that we actually employ, though theoretically we may 
use a host of others. In the same way, for measuring lengths we 
never speak except of yards, etc., although we may just as well 
express a particular length by comparing it with a man's size, the 
height of a tree, or any other length. 

Nevertheless, we must not altogether confound price and value, 
as is popularly done, and believe, for instance, that because the 
price of a thing is the same in two different places its value must 
necessarily be the same ; or, inversely, believe that because the 



WEALTH AND VALUE. 83 

price of a thing has varied, its value must necessarily have varied 
in the same prpportion. That might be a gross blunder. 

If we suppose that the value of the precious metals has not 
remained the same from yesterday up to to-day, it is clear that the 
value of every object measured by means of these precious metals 
will be found to have altered ; that is to say, its price will have 
varied, and that in inverse ratio to the fluctuations in value of the 
precious metals. 

If the length of a metre, or rather the length of the earth's «ir- 
cumference of which the metre is but a subdivision, were through 
some startling phenomenon reduced by a tenth, is it not clear 
that all objects measured by us henceforward would appear to be 
one-tenth longer or higher? Yet no such change would have 
occurred ; it would be merely an illusion produced by the shorten- 
ing of the unit of measure. Similarly, if money, or, rather, the 
precious metals which constitute it, happened to lose about a 
tenth of their value in consequence of some far less extraordi- 
nary phenomenon, say their superabundance, it is clear that the 
price of all objects, that is to say, their value expressed in money, 
would seem to us to have risen by a tenth. 

We can therefore lay down the following formula : " every 
variation in the value of money involves an inversely proportional 
variation in prices." Would the reciprocal be equally true, and 
might we say that every variation in prices presupposes an inverse 
variation in the value of money ? Our answer is, " Yes, if the 
variation in prices is absolutely general ; no, if it is not so." In 
the latter case the variation in the prices of certain objects evidently 
depends on causes peculiar to these objects. Now as the prin- 
cipal factor which influences the value of money is the greater or 
less quantity of money in the shape of coin, a second formula can 
be laid down, which, however, is not so absolutely true as the first 
one, — " every variation in the quantity of money involves a 
directly proportional variation in prices." Thus if the quantity of 
money in a country happens to double, it is probable that, other 
things being equal, prices will rise considerably, though it would 



84 PRINCIPLES OF POLITICAL ECONOMY. 

be rash to say that they will double. We admit that this second 
formula is not absolutely true, for quantity is not the only factor 
which influences the value of money. The development of com- 
merce, the increase in population, the substitution of instruments 
of credit for metallic money, may act in different ways on the utility 
of money, and consequently on its value, irrespective of any vari- 
ation in its quantity. (See M. Milet's article " un aphorisme or- 
thodoxe, mais inexact sur la monnaie " in the Revue d^ Economie 
politique^ March-April, 1890.) 

IV. Whether the Measure of Value be not an Insoluble 

Problem. 

The function of a common measure is to enable us to compare 
objects situated in different places, and therefore incapable of a 
direct comparison, or to compare the same object at different 
points of time and ascertain whether it has varied, and, if so, in 
what proportions. By the use of the yard-measure I am able to 
compare the stature of Lapps with that of Patagonians, and to 
measure exactly how much taller the latter are than the former. 
If the yard-measure is in use, or even known, some million years 
hence, it would enable me to compare man of that date with man 
as he is to-day, and to ascertain whether he has degenerated in 
stature. 

But it is clear that our conclusions will be accurate only so long 
as we are certain that the length of the yard-measure used as our 
standard is exactly the same in Lapland and in Patagonia, and 
that a thousand years hence it will be just what it is to-day. Inva- 
riability of the magnitude chosen as a common measure, invaria- 
bility in space and in time, appears then to be an indispensable 
condition ; or, at any rate, if this magnitude varies, we must be 
able to determine, and consequently to correct, these variations. 

We require the same utihty from a common measure of values ; 
that is to say, from money. By its aid we wish to be able to com- 
pare the values of commodities situated in different places, or to 



WEALTH AND VALUE. 85 

compare the value of one particular commodity at different times. 
Is it not of great interest to a corn-merchant to know whether corn 
has a higher value in France than in Russia, if he has more this 
year than he had last year? But of what use would our calcu- 
! itions be, if the value of the commodity w^e take as our unit {i.e. 
the value of money) was not the same in Russia as in France, not 
the same this year as last year? Is it not, then, necessary for the 
value of money, also, to satisfy the condition indispensable for every 
common measure, — namely, invariability in space and in time ? 

Now we know from our previous explanation that the value of 
each thing varies, and that of the precious metals likewise, although 
in smaller proportions than in the case with the others. Thus the 
attempt to discover a measure of values would seem to be an 
insoluble, nay, contradictory problem, a very squaring of the circle 
for political economy ; this, in truth, is the almost unanimous 
opinion of economists. 

Yet we cannot join them. It is true that we must abandon the 
hope of finding an invariable unit of measure, but this condition is 
not absolutely indispensable. 

In no sphere of work, in fact, have men been able to discover a 
rigorously invariable standard. Even the metre [3.280 feet] of 
platinum and iridium, which was cast with great trouble and at 
great expense at the Conservatoire des Arts et Metiers to serve as 
standard for all countries which have adopted the metric system, 
even this varies in length for each degree of temperature. But 
the coefficient of expansion is known and the necessary rectifica- 
tions are made. The litre [1.760 pints] of distilled water, which 
serves as unit of measure for weight, under the name of kilogramme 
[2.204 pounds avoirdupois], has really a weight which varies for 
each degree of latitude or each yard of altitude. But we know 
the law of these variations and can reckon for them. 

In the same way we should care little for our type of value 
varying, if only we could discover and determine those variations : 
that once accomplished, nothing would be easier than the making 
of the necessary corrections. 



86 PRINCIPLES OF POLITICAL ECONOMY. 

The whole question, then, resolves itself into this : can we dis- 
cover and determine these fluctuations ? 

Let us suppose that to-day a list was to be carefully prepared 
of the price of all commodities, not one being omitted. Ten or a 
hundred years hence let a new list of prices be compiled ; if on 
comparing this with the former one it be found that all prices, 
without exception, have increased fifty per cent, on such an 
hypothesis we can affirm that the value of money has actually fallen 
thirty-three per cent. For henceforward everything that used to 
cost two shillings costs three ; that is to say, three shillings are 
only worth what two used to be, and therefore money as coin has 
lost a third of its value. 

But it may be asked, what authorizes us to draw such a con- 
clusion ? 

The following line of argument : Such a phenomenon as a 
general and uniform rise of prices permits of but two possible 
explanations : we can admit — -either that things are what they seem 
to be. I.e. that all commodities have undergone an upward move- 
ment, which is both universal and identical ; — or that the value of 
one thing only, say money, has been subjected to a downward 
movement, no change whatsoever having occurred in the value of 
all other commodities. Which of these explanations are we to 
choose? Common sense does not allow a moment's hesitation. 
In proportion to the simpHcity and ease of the second explana- 
tion is the improbabihty of the first, in consequence of the mar- 
vellous combination of circumstances which it requires. How 
are we to conceive a cause capable of acting simultaneously and 
equally on the value of the most dissimilar objects, as regards their 
utility, their quantity, and their mode of production ? How 
imagine a cause able to raise at exactly the same time and in pre- 
cisely identical proportions, the value of silk and of coal, of corn 
and of diamonds, of lace and of wines, of land and of manual 
labor, and of all other things which are not bound up with one 
another, and in fact are absolutely independent ? The choice of 
such an explanation would be just as irrational as to hold that the 



WEALTH AND VALUE. 8/ 

motion of the stars is better explained by the system of Ptolemy 
than by that of Copernicus. This movement may be interpreted in 
two ways, either by the displacement of the entire heavenly vault 
from east to west ; or, perfectly easily, by the displacement of our 
earth in the contrary direction. Now, in spite of the lack of any 
direct proof, we do not doubt for a moment which is the prefer- 
able and real explanation. It is absurd to imagine that heavenly 
bodies, so different in nature, and so enormously distant from one 
another as the sun, moon, planets, bright stars, and nebulous stars, 
could execute such a movement, preserving their respective places 
and mutual distances as if they were soldiers on parade. An 
identical line of argument must be used to account for the upward 
movement of prices ; it can be rationally understood only as a sort 
of optical illusion ; it is an apparent movement caused by the 
actual and inverse movement of money, which discloses it to us 
and measures it at one and the same time (see Cournot, <?/. r//.). 

In reality, the circumstances are not so simple as we have sup- 
posed them to be for the sake of argument. An absolutely gen- 
eral and uniform rise of prices will never be shown to occur ; as 
the value of each individual object depends on its particular 
causes of variation, we shall only find that certain prices have 
risen, but in very dilTerent proportions ; that others have remained 
stationary, and that some have even fallen. 

Yet if skilfully managed calculations could strike a general aver- 
age, say a rise of ten per cent, this could only be explained, for 
the reasons given above, by an equal (and inverse) fall in the 
value of money. 

This may be paralleled by another analogy borrowed from as= 
tronomy. The stars, which are inaccurately termed fixed stars, 
have been discovered, in reality, to change their positions in very 
divergent directions. Yet astronomers believe they have discov- 
ered a mean alteration of all these movements towards a specific 
point in the sky. No other way of accounting for this general 
movement has been found, than that it should be regarded as an 
optical illusion, produced by a slipping movement of our solar 



88 PRINCIPLES OF POLITICAL ECONOMY. 

system towards an exactly opposite point. An attempt has even 
been made to measure this latter movement. 

We can now easily understand how variations of the standard 
could be calculated from variations in prices, and how tables of 
these fluctuations could be published at fixed times, to serve as an 
official guide for the correction of the errors which arise from the 
use of money as the measure of values ; thus debtors who had 
borrowed a hundred pounds might be discharged from their obli- 
gations on the payment of only ninety, or inversely might be com- 
pelled to pay one hundred and ten, according as the computation 
showed a rise or a fall of ten per cent in the value of money. 
Similar tables of reference have been previously proposed in 1822 
by Lowe, in 1833 by Scrope. (See Jevons on Money, page 328.) 

V. Whether Money should be reckoned as Wealth. 

Popular opinion would give a ready answer to this question. 
Always — we might almost add everywhere — men have given 
money a quite exceptional place in their thoughts and desires. 
They have regarded it, if not as the only wealth, as at any rate by 
far the most important, and, truth to tell, they appear to esteem all 
other wealth only in proportion to the quantity of money that can 
be acquired for it. The value a tradesman places on his goods in 
taking stock of his wealth means nothing, so long as they are not 
realized (as he would express it) ; that is to say, are not sold. 
Thus, in his opinion, wealth goes for nothing except when it exists 
in the shape of coin. For a man to be rich, he must possess 
either money or the means of obtaining it. 

It would be interesting to trace through history the various 
shapes taken by this idea which confounds gold with wealth. 
There were the attempts of the mediaeval alchemists to transmute 
all metals into gold and thereby accomplish what they termed 
the magnum opus, which would have been far less a chemical 
discovery than an economic revolution. There was the enthu- 
siasm kindled in the Old World on the arrival of the first galleons 



WEALTH AND VALUE. 89 

from America, convincing men that in fabled Eldorado an end 
would be foui}d for all miseries. The same idea was manifested 
in the efforts made by governments to establish that ingenious 
" Mercantile System " that was to cause money to flow into the 
countries that had it not, and to prevent it quitting those lands 
which were possessed of it. Even to-day this old confusion is 
still extant ; it is visible in the anxious care with which statesmen 
and financiers watch the goings-out and the comings-in of coin, 
as they appear to result from the balance between exports and 
imports. 

But on turning to economists we shall receive quite another 
answer ; for it was by a protest against this very idea, which it 
termed a prejudice, that political economy first manifested its 
existence. Political economy was but new born and was still stam- 
mering with Boisguillebert when it sent forth from his lips this 
utterance : " It is quite certain that money is not a good of itself, 
and its quantity does not create the opulence of a country." 
— Economistes du XVIIP Steele. Edit. Guillaumin, Tome I, page 
209. Since Boisguillebert's days every economist has regarded 
coin with absolute contempt, and has stated it to be a mere com- 
modity like everything else, and even much inferior to any other 
article ; for by itself it is incapable of satisfying any want or of 
affording us any enjoyment, and, indeed, is the only thing whose 
abundance and scarcity can be said to be matters of perfect indif- 
ference. If there are few pieces of money in a country, each one 
will have a greater purchasing power ; if there are many, the pur- 
chasing power of each coin will be less. What does it matter 
to us? 

These two opinions can be easily reconciled, however contra- 
dictory they may appear to be. The public, as usual, only takes 
the individual point of view, and is correct according to its own 
lights ; the economists are right from the general point of view. 

Every piece of money must be regarded as an " order " or ticket 
which is valid as regards the sum-total of existing wealth, and gives 
its holder the right of claiming as his own, and at his own choice, 



90, PRINCIPLES OF POLITICAL ECONOMY. 

any portion of this wealth, until the value of the coin has been 
reached. Moreover, as may be seen in MacLeod's works, this 
" order " possesses an advantage over credit papers, in that it 
carries its own security with it ; for it is guaranteed by the value 
of the metal that composes the coin. 

Naturally each one of us desires to have the greatest possible 
number of these orders, and the more we have, the richer we are. 
We know well enough that, in themselves, these orders can neither 
stay our hunger nor slake our thirst. We are not so stupid as to 
think that ; and ages before economists had lighted on this truth, 
legend had taught it in its tale of King Midas dying of hunger 
while surrounded by wealth which his own folly had turned into 
gold. Yet even the contemplation of such a fate has not prevented 
us from regarding these " orders " as far more convenient than 
any other kind of wealth, and we are quite right in thinking so. 

For, in society as it is, every one who desires to obtain an ob- 
ject he has not produced himself (and the immense majority of 
people are thus situated) can only obtain it by a double process : 
firstly, by exchanging the products of his labor, or his labor itself, 
for money — this is called " to sell " ; secondly, by exchanging this 
money for the objects he desires — i.e. " to buy." The second of 
these processes, purchase, is very simple ; by means of money a 
wished-for object is always easily obtained. The first process, sale, 
is infinitely more difficult ; money is not always readily procurable 
for any article. Thus the possessor of money is in a far better 
position than the possessor of any other commodity : for the satis- 
faction of his wants the former has but one stage to clear, and that 
an easy one ; the latter has two, and one of them, an awkward bit 
of ground, presents considerable difficulty. It has been well said 
that any article of wealth corresponds only to a special and deter- 
minate want, while money corresponds to a genei'al and unive7'sal 
want. The owner of some commodity may not know what to do 
with it. The possessor of money will have no trouble of that kind ; 
he will always find some one to take it from him. If by chance 
he is not able to make use of it at the moment, he has the handy 



WEALTH AND VALUE. ' 9I 

expedient of keeping it for a more favorable opportunity. Few 
other goods can be kept in that fashion. 

But the possession of money carries with it what is perhaps an 
even greater advantage ; for he who has money can make sure of 
being able to fulfil his engagements : no other wealth enjoys this 
remarkable quality; for in the eyes of the law, just as in the un- 
written law of custom, money is regarded as the only means of 
discharging liabilities. There is no business man or manufacturer 
who does not always owe more or less considerable amounts. 
Now his having in stock goods worth more than the sum-total of 
his debts might be useless (and in cases of failures it sometimes 
happens, when all reckonings have been made, that the assets 
exceed the Habilities) ; ^ unless at the desired time he is able to get 
his signature honored by that particular form of wealth which we call 
" hard money," he is declared bankrupt. Is it surprising, then, that 
so great importance is attached to a commodity on the possession of 
which our credit and our honor may at any moment be dependent ? 

If we turn from the position of the individual man, and con- 
sider the whole mass of individuals who constitute society, the 
point of view changes, and there is more correctness in the econo- 
mists' thesis that the amount of money in a country is a matter of 
indifference. It would be no use to me to have the amount that 
I hold multiplied by ten, if the same thing happened for all the 
other members of society. On that hypothesis I should be no 
richer; for wealth is purely relative, and I should not be able to 
obtain a larger measure of satisfaction than I previously had. For 
as there is no increase in the sum-total of wealth from which these 
" orders " are payable, each order will entitle me to a share, which 
is ten times less. In other words, the purchasing power of each 
coin will be ten times less ; or again, all prices will be multiplied by 
ten, — and my position will be as it was. 

However, in their mutual j^elations, countries, like individuals, 

1 In the crisis in the London Money Market, November, 1890, the great 
House most seriously affected is said at the time of its stoppage to have had 
assets exceeding its habilities b) no less than ^4,000,000 sterling. — J. B. 



92 PRINCIPLES OF POLITICAL ECONOMY. 

gain by being well provided with money, but rather less, however. 
As exchange relations and credit transactions between countries 
are not so numerous as they are between individuals, money, 
whether as the instrument of purchase or of payment, is not so 
important a factor in such relations. Still, the increasing solidarity 
of the nations will tend to proportionally enhance the power of 
money in this field. 

If we were to multiply by ten the amount of money in France, 
there would be no change in the respective position of Frenchman 
as against Frenchman (the increase being premised to be propor- 
tional for all) ; but France would not be on the same terms as 
regards foreign countries, and so obvious a fact is erroneously 
denied by economists in their struggle against the mercantile sys- 
tem. Their very abundance would cause pieces of money to be 
depreciated in France, but not elsewhere ; they would retain intact 
their purchasing power in foreign markets, and France might thus 
obtain an increase of satisfaction which would be in proportion to 
her increase of money. However, as we shall show when dealing 
with international trade, this privileged position could not last 
long. 

The economists' dogma, that the quantity of money is a matter 
of indifference, does not become perfectly true till we not only 
extend our view over all individual men, and over all countries, 
but embrace in our observations the human race at large. We 
might then assert with absolute accuracy that the discovery of 
gold mines, a hundred times more valuable than those we are now 
cognizant of, would not benefit man in the least. Nay, we should 
rather be inconvenienced ; for, as gold would be worth no more 
than copper, we should be compelled to load our pockets with 
as cumbrous a form of money as that which Lycurgus sought to 
force upon the Lacedaemonians. 



BOOK 11. 

PRODUCTION 



Part I. — The Conditions of Individual 
Production. 

THE FACTORS OF PRODUCTION, 

Our first study will be the conditions of individual production, 
that is to say, such conditions as every man is subject to, even 
though he be alone in the world, like Robinson Crusoe on his 
island. After that we shall study the conditions of social pro- 
duction, the conditions experienced by men living in society, 
which only arise, or at any rate develop, with the progress of 
civilization. v 

Thanks to a tradition which has nowadays become altogether 
classical, production has three agents attributed to it, — land, labor, 
and capital. This threefold division possesses the advantages of 
simplicity and ease ; its demerit is that it does not state what 
should be stated, and does state what should not be stated. 

To begin with, it errs in placing on a footing of equality ele- 
ments of production which are extremely unequal in importance, 
and are very different in their mode of action ; it ranks together 
labor, which is actually the agent of production, and capital, which 
is only an instrument ; it puts on the same grade labor and nature, 
which are the original factors of all production, and capital, which 
is merely a factor of the second order, being a derivative product 
of the two first. 

93 



94 PRINCIPLES OF POLITICAL ECONOMY. 

Again, it is incomplete ; for it omits certain conditions of pro- 
duction which are as important as those it enunciates, e.g. time, 
the environment, and so forth. 

The process of individual production should be represented as 
follows : — 

Man is the sole agent of production, understanding the word 
" agent " to mean that it is he alone who can take the initiative 
in every productive enterprise. This activity of man, in so far as 
it is employed for the production of wealth, is called labor. But 
this energy cannot work in the void ; it does not emanate from a 
creative fiat ; for its fertility it requires certain external conditions 
which we shall now enumerate. They are five in number. 

1. Raw 77iaterial. Man, as we have just said, cannot make 
anything out of nothing. This is then a sine qua non — as it is, 
indeed, for the wealth that is wrongly called non-material, or 
services rendered. Human speech is only air in motion. 

2. A certain extent of ground. For the production of anything 
some place is required, were it only sufficient to hold a work-bench 
or a loom. 

3. A certain duration of time. Man's activity is limited by 
time as much as by space. No act of production can be instan- 
taneous. We shall see that this condition, like the preceding one, 
far from being purely metaphysical, has consequences which are 
of serious economic importance and of great practical interest. 

4. Certain tools. In production man cannot dispense with 
those implements which, as has been well said, play for him the 
part of supplementary organs. Of the numerous definitions which 
have been proposed for distinguishing man from animals, " maker 
of tools " is certainly one of those which fit him best. 

5. A favorable e7iviro7iment, which is composed of climatic, 
geographical, and geological conditions. Man's activity, like that 
of every other living being, is subordinated to the environment 
in which he lives and should evolve. 

Such is the order in which the conditions of individual pro- 
duction should be analyzed. Still, although persisting in regarding 



PRODUCTION. 95 

the old tripartite division as a vexatious one, we have been 
obHged to adhere to it at least in form. Indeed, for us, in a 
book like this, to break with a classification which has been unan- 
imously adopted in all books and in courses of instruction,^ would 
be to confuse our readers. All that we can do is to try and fit these 
conditions into the classical frame as well as is possible, though 
some, indeed, do not easily lend themselves to such an attempt. 
We will now take in succession land, or rather nature, labor, and 
capital, and seek under each of these three heads for the various 
conditions just enumerated. 

1 Dr. Bohm-Bawerk, Kapital-Zins, Vol. II, 83 (English translation by 
Smart, p. 79), recognizes only two productive forces — Nature and Man. See 
Harvard Qna7'terly Journal of Economics^ April, 1889, p. 337. — J. B. 



CHAPTER I. 
NATURE. 

By the word " nature " we must not understand a fixed factor 
of production, for that would be meaningless, but rather the whole 
body of the pre-existing elements supplied to us by the environ- 
ment in which we live. 

The term "land" was formerly employed instead of "nature." 
The expression, indeed, is equivalent in extent, if we are to under- 
stand by it not simply cultivable ground, buf the terrestrial globe. 
No doubt, our planet, and merely the superficial crust of that, is 
the only portion of the universe which can serve as the field for 
our economic activity. Still, as savage tribes have been known to 
make use of the crude iron they have discovered in fallen aerolites, 
and as we directly borrow the sun's light for our photographic pro- 
cesses and its her^ for " Mouchot " machines, taking all in all, the 
term " nature " is the more accurate. 

Now, for man to produce aught, nature, as shown in the previ- 
ous section, must provide him with a favorable environment, a 
large enough extent of ground, and raw material which can be 
utihzed. Ground might be said to be included in our term, 
" environment." It is so philosophically, but not so, economically : 
for ground is an object of property, whereas the environment is not : 
thus ground is a separate element. She also supplies him with the 
natural forces which work his machines. We will say a few words 
on each of these four ways in which nature collaborates with man. 

I. The Environment. 

It is possible that some historians or philosophers like Mon- 
tesquieu may have exaggerated the influence of the geographical 
environment on the social and poHtical development of peoples, 
96 



PRODUCTION. 97 

but it would be difficult to exaggerate this influence so far as it 
concerns economic development and productive power. Air, 
water, and land have all had a decisive influence on the evolution 
of human societies. 

Le Play's school builds up the whole of social science from this 
question as to the environment. It distinguishes three kinds of 
ground which give rise to the three types of primitive societies : 
the steppe to the pastoral races, the seashore to the fisher tribes, 
\)i\Q forest X.Q) the liunter peoples. These are the fundamental types 
of simple societies, i.e. those which subsist purely on the spontane- 
ous products of the soil ; but Le Play's school goes further and 
derives from them by relation of necessary affiliation, all the 
complex^ or, in other words, civilized societies. Thus from the 
primitive state of the soil it accounts for the origin of the establish- 
ment of property, of the family, etc. This system has been treated 
in a very interesting manner by M. Demolins in the Revue de la 
science sociale^ 1886. 

I. The climatic sitiiatio?i. Tropical lands may have witnessed 
the growth of brifliant civilizations, but they have never been 
favored with laborious and industrially fertile races. For there 
Nature seems to discourage productive activity both by her gener- 
osity and by her outbursts of violence. In those blissful climates 
where " bread grows like a fruit," and clothing and even housing 
are scarcely required in consequence of the warm temperature, 
man comes to rely upon nature and spares himself all effort. On 
the other hand, in those regions physical forces are so exceed- 
ingly violent, their various manifestations, torrential rains, floods, 
earthquakes, cyclones, are so irresistible, that man is cowed and 
does not even conceive the audacious idea of conquering them 
and turning them to his own ends : he scarcely dreams of meas- 
ures of self-defence. In our temperate lands Nature is niggard 
and severe enough to compel man to rely in great measure upon 
his own eflbrts ; but the forces she displays are not so awe-inspir- 
ing as not to allow human industry to tame her. In this way she 
may be said to favor productive activity both by what she refuses 
and by what she gives. — - 



98 PRINCIPLES OF POLITICAL ECONOMY. 

2. Geographical configuration. Were it not for her insular 
position, who would ever dream that England would have become 
the first maritime and commercial power in the world? If a 
proof were necessary of the dominant part this factor has played 
in the destinies of England, it would be supplied by the curious 
feeling of terror which possessed her lately at the mere prospect 
of being united to the Continent by a submarine tunnel. 

Why has the continent of Africa, known to man from the remotest 
antiquity and the seat of the earliest of all civilizations, that of 
Egypt, remained to this very day out of the sphere of all economic 
movements ? why, on the other hand, are the two Americas, the dis- 
coveries of a mere yesterday, cut in all directions by the currents 
of commerce ? The chief reason is to be found in the difference 
of their river inter-communication. The rivers of the New World 
flow into the ocean by huge estuaries, and are joined together by 
such an intricate network, that we can pass from the tributaries of 
the River Plata into those of the Amazon and thence to those of 
the Orinoco, and in the northern continent from the basin of the 
Mississippi to the Great Lakes, almost without leaving the water- 
way ; but all the African rivers, though no less large, greet the 
explorer at the lower parts of their course with a barrier of impass- 
able cataracts or of pestilential swamps. 

3. The geological constitution of the soil and sub-soil exerts 
no less influence ; for it is this which creates agricultural and 
metallurgical wealth. The dread with which England calculates 
the time when her coal mines may begin to fail her, shows well 
enough how much she owes them for her industrial development. 
China has her "yellow" earth, and Russia is no less a debtor for 
her rich "black earths" — nV/^ literally, not merely figuratively ; 
for according to statisticians they contain nitrogen to the value of 
640,000,000 pounds sterling. 

It would appear at first sight that man is unable to modify the 
environment with which nature has surrounded him, that his only 
resource is to adapt himself to it as best he can. Yet he does 
succeed in exercising some modifying influence on this very envi- 



PRODUCTION. 99 

ronment, though it, perforce, is extremely limited. As regards 
geology, he cannot create mines where there are none, but by 
judicious agricultural improvements he can remake the cultivable 
soil in detail, and make arable tracts of the sites once occupied by 
marshes, stagnant ponds, and even gulfs of the sea. As regards 
geography, he cannot alter the great marking lines drawn by 
Nature, but with a little favor on her part he can succeed in modi- 
fying them. Thus he can complete a network of inland water- 
communications, can overcome the barriers raised by mountains 
and arms of the sea, by constructing roads either above or, bet- 
ter still, beneath them ; and greatest of all, can separate Africa 
from the Old World continent, and South America from the New 
World, thus turning these two peninsulas into two islands. Cli- 
mate certainly cannot be changed ; but by plantations on a large 
scale, by fitting cultivation, perhaps, too, by other means, the 
secret of which we have not yet guessed, human industry will be 
able to advantageously modify the sway of rain and even of the 
winds. Thus some scientific men have proposed to alter the 
course of the great maritime currents, such as the Gulf Stream, 
for the purpose of distributing heat or coolness among the conti- 
nents, just as water and gas are distributed in towns. 

II. The Ground.^ 

Man needs a certain amount of space on land, were it only to 
stand on. He requires rather more to sleep on, still more to build 
his house on, and far larger room for the sowing of his corn or the 
pasturing of his flocks and herds. Now this question of room 
becomes very serious as soon as the population of a country has 
grown sufficiently dense. When human beings, in obedience to 

1 The word " land," which is ordinarily used, is a very complex combination 
of ideas; first comes a superficial extension, which we represent by the word 
^^ ground'''' ; then there are raw materials exemplified by the elements which 
compose the soil and the subsoil; finally come a number of physical and 
chemical agencies which are ever at work in cultivated ground in the form of 
light, heat; humidity, electricity, and so forth. 



lOO PRINCIPLES OF POLITICAL ECONOMY. 

their sociable instincts, group together in one of those huge ant- 
hills called London or Paris, New York or Hankow, the necessary 
space for housing them ends by becoming deficient ; then plots of 
land acquire a higher value than that of the buildings which cover 
them, even were they palaces made of marble ; and as we shall 
see when dealing with house-rent, the resulting social conse- 
quences are most deplorable for the working- classes. 

However, we need not fear that one day there may not be room 
enough on the earth for men to live on ; yet it is not unreasonable 
to ask whether there will always be enough space for men to obtain 
food from. For the portion of ground necessary to supply food 
for one man is of considerable size, and this portion is always being 
diminished by the progress of civiHzation and agricultural methods. 
For hunter peoples several square leagues are needed per head ; 
for pastoral races some square miles ; for agricultural nations a few 
acres are enough ; and the limit falls as men pass from cultivating 
the land far and wide to cultivating it thoroughly and deeply ; 
i.e. from extensive to intensive cultivation. In China this latter 
mode of cultivation, which has almost become kitchen-gardening, 
enables several men to subsist on the produce of two and one-half 
acres. Yet this defect, though considerably lessened, still con- 
tinues, and tends to make the human race somewhat anxious as 
to its future. 

No doubt, when the required space begins to fail him, man will 
be able to seek it elsewhere. The discovery of the New World, 
of South Africa, and of Australia has enormously extended his 
territory and renders certain enough room for many generations 
still to come. Yet these reserves stored up for the future will be 
exhausted some day. Now if we are already somewhat anxiously 
estimating the amount of coal we still have to burn, we can 
reckon far more easily the amount of earth that remains over for 
us to lay hands on. There is no hope of discovering any new 
lands. Though the surface of the globe is not yet entirely occu- 
pied nor even known to us, still it is all measured out. Before 
another century has passed away the last vacant spot will have 



PRODUCTION. lOI 

been filled up, the last landmark will have been planted, and 
henceforward the human race will have to content itself with its 
fifty-two milHon square miles, without the hope of increasing it 
by new conquests. 

Its only consolation then will be to repeat the line that Regnard 
inscribed, with a presumption the future has falsified, upon a 
rock in Lapland, ^^ Et stetimus tandem ubi defuit orbisP 

III. The Raw Material. 

The inorganic substances which compose the earth's crust to 
the slight depth to which we have been able to penetrate, and 
the organic bodies which proceed from the vegetable or animal 
living creatures which people its surface, supply industry with 
the raw material that is indispensable to it, and form the original 
elements of all wealth. 

Some of these materials Nature has spread about with lavish 
profusion ; of others she has been excessively sparing. Among 
the former may be mentioned some of the constituents of the 
earth's crust, — granite, chalky matters, clay, and the fresh or salt 
water which covers three-quarters of the earth's surface. But 
those carbon-crystals we call diamonds, and even some metals, 
such as gold or mercury, are found in exceedingly small quantities. 

Even the substances that exist in large quantities may be scarce 
if some one particular region be considered. No doubt there are 
enough stone-quarries in the world to build thousands of capitals 
like Paris, but all the same they may be absent from the required 
site of some city, say Nineveh of old time, or London to-day. 
Sea-salt is unbounded in amount, but is scarce enough in Central 
Africa to be used for money. Fresh water is the typical example 
of wealth which is unlimited in supply, yet we need not go as far 
as the Sahara to find places where water is scarce, and can only 
be obtained with much engineering toil. In fact, there is only 
one body which is ubiquitous and immeasurable ; to wit, the 
atmospheric air which surrounds and envelops the entire globe 



102 PRINCIPLES OF POLITICAL ECONOMY. 

with a uniform layer. But even this air is not within the reach of 
every one, if special conditions of salubrity, coolness, or heat are 
required. An arid plot at Cannes or Nice sells for ^4 a yard. 
Why? Because what is paid for is not merely the right to the 
ground, but the right to an atmosphere and a sun that are not 
found elsewhere. 

As regards the materials which are superabundant but unequally 
distributed, human ingenuity can remedy such a disadvantage by 
removing the substances and transporting them to spots where 
they are lacking. Hence, as we shall see later on, transportation 
is really an act of production. But since matter, owing to its 
weight and inertia, opposes a powerful resistance to any attempt 
at removal, and since the labor and expense necessary for the 
overcoming of this resistance increase in proportion to the dis- 
tance to be covered, industry is not all-powerful, and can only 
relatively harmonize the inequalities of nature. Nevertheless, 
men are now so well furnished with implements for this kind of 
labor, that the effect produced is by no means small. 

It is clear that man cannot increase in amount substances which 
are really restricted in quantity. It is not for him to create one 
atom of matter. Yet, by the aid of chemical combinations or 
decompositions, he can build up the bodies he requires. If the 
stock of diamoiids ever runs short, he may be able to manufacture 
more by crystallizing coal ; or if coal, in its turn, ever becomes 
exhausted, he may succeed in extracting it from the carbonates 
of lime which are so very common in the earth's crust. In other 
cases, human industry will have to restrict itself to discovering 
some substitute ; i.e. some substance possessed of properties analo- 
gous to those of the missing body. This search is usually more 
or less successful ; for there is such an infinite variety of organic 
substances and lifeless matter, that some can be found which 
possess common characters, and can therefore, to a certain extent, 
supply one another's place. Animal ivory is threatening to become 
extinct in consequence of the wasteful and destructive mode of 
elephant-hunting ; but in the forests by the Amazon a substitute 
has been found in a vegetable ivory. 



PRODUCTION. 103 

IV. Motive Forces. 

The work' of production consists purely of changing the place or 
the form of matter. We have seen that, because of its vis inerti(B, 
matter resists this treatment, and man's muscular strength is not 
very great. 

Nevertheless, by the invention of tools, man has been able to 
create artificial organs which have wonderfully added to his 
strength and dexterity. Thus, by means of a hydraulic press, a 
child can exert unhmited pressure ; and Archimedes justly boasted 
that with a lever and a fulcrum he could raise the earth. Yet 
some mathematicians have taken the trouble to calculate, that, 
even if he had found his missing fulcrum, he could have raised 
the world only to an infinitesimally small height, even by work- 
ing for some million years. For it is a law of mechanics that 
when using tools man loses in time what he gains in strength. By 
them he can lift a weight a thousand times heavier than he could 
by his arms alone, but he will have to take a thousand times as 
long over the process. Now, time being a very precious element, 
which we should be chary about wasting, the practical advantage 
of the use of tools is comparatively limited. On the other hand, 
the employment of machines multiplies strength indefinitely. 

In all times, therefore, and especially since the abolition of 
slavery has denied him the gratuitous employment of the strength 
of his fellows, man has striven to fortify his weakness by the aid of 
certain motive forces supplied to him by nature. There are not 
very many of them, though too favorable reckonings have been 
made. In truth, there are only four which man has been able 
to use in production : the muscular strength of animals ; the 
motive force of winds and of water ; and, best of all, the expan- 
sive power of vapors, especially of steam. 

It should be observed that in proportion to the powerfulness of 
these natural forces have been the time and trouble necessary for 
man to expend before succeeding in utilizing them and turning 
them to his ends. This is natural ; for resistance increases in 



I04 PRINCIPLES OF POLITICAL ECONOMY. 

direct ratio to the force. These results have been effected by the 
aid of machines. A machine is but a tool or implement, which 
instead of being moved by the hand of man, is worked by a 
natural force (water power, steam, etc.). Now a difficult problem 
in mechanics is involved in this handling of a natural force which 
is sometimes irresistible, sometimes unseizable, so as to compel it 
to turn a wheel, push a plane, or work a shuttle. 

The domestication of various animals, such as the horse, camel, 
elephant, reindeer, and Esquimau dog, supplied mankind with 
the first natural force they used for carrying, draught, and tillage. 
That of itself was a valuable conquest ; for an animal is propor- 
tionally stronger than man. A horse's strength is estimated as 
seven times greater than a man's, and the food he requires is by 
no means of greater cost. But the number of such animals in a 
country is restricted in proportion to the increase of population, 
for they require much space whence to obtain food ; thus the 
motive force they afford is, relatively speaking, not of any great 
account. 

The motive force of the wind and of rivers has always been 
used for carriage, and at a later date, though still at a high an- 
tiquity, for turning mills. These, indeed, are most powerful agen- 
cies. The motive power of streams in France alone, which is 
uselessly expended in wearing out pebbles, has been calculated 
to amount to thirty millions horse-power ; that is to say, to a force 
equal to the strength of all the men of an age fit for work, who are 
to be found on earth at the present moment. One single waterfall, 
such as Niagara, would feed all the factories in England. In the 
few hours of its devastating existence, a cyclone develops enough 
motive force to keep going all the workshops in the world for a 
thousand years, if we only knew how to use it. The waves into 
which the wind furrows the bosom of the sea, 'the tides which 
twice a day break on thousands of leagues of coast-Hne, form 
literally inexhaustible reservoirs of force. Unfortunately up to the 
present man has found no mode of turning them to account. 
They are still in a savage or untamed state, sometimes too power- 



PRODUCTION. 105 

ful or too weak, too irregular or too intermittent. Thus the forces 
which might raise the world are even now scarcely used but to 
turn a few wretched mills. 

The expansive power of vapors, or rather the heat generated by 
combustion, of which this force is only a transformation, grants 
man the priceless advantage of being able to develop it whej-e, 
when, and as he wilL It is mobile, portable, continuous, large 
or small according to demand. We raise it from one up to ten 
atmospheres, and theoretically, at least, there is no limit. If water 
was heated to 516 degrees Centigrade, a not exceedingly high 
temperature, we should develop a pressure of 1,700,000 atmos- 
pheres, which is more than sufficient to raise the Himalayas. The 
only difficulty would be the discovery of a strong enough envelope. 
In fact, this force is artificial, being created not by nature, but by 
man : he has made it for his own use and works it as he wishes. 
No more obedient slave has ever bowed under a master's yoke. 

The prehistoric inventor, whose name will forever remain un- 
known, but whom the gratitude of mankind has deified as Pro- 
metheus, he who first caused a spark to spring from the friction 
of two pebbles, never suspected when he looked on this flame, 
which was certainly due far more to chance than to his genius, 
what mar\^ellous power he was granting to human industry. First 
of all, no doubt, fire ministered only to the humblest wants of 
domestic life. Later on it was used for the extraction, the found- 
ing, and the working of metals. Its utilization as a motive force 
dates from the time that men discovered the explosive power a 
spark could communicate to some substances, i.e. gunpowder, and 
in this form it is still employed, not only to propel projectiles for 
a mile or two, but also to bore tunnels. But it was not till New- 
comen, in 1705, and James Watt, in 1769, had used it for dilating 
steam confined in a chamber, and had thus created the wonderful 
instrument of modern industry which we call the steam-engine, 
that fire, or rather heat, became the guiding spirit of industry. 
I say that the steam-engine is a "wonderful" instrument, for the 
sake of the services it has rendered us. In reality it is very 



I06 PRINCIPLES OF POLITICAL ECONOMY. 

defective ; for it utilizes only a small part, at most a tenth, of the 
heat generated by the combustion of the coal. There is great 
waste from the furnace to the boiler, and further, though smaller, 
waste between the boiler and the engine proper. Hence the 
remark of M. Le Bon, an engineer, *' I hope that before twenty 
years have passed, the last specimen of this rude machine will 
have taken its proper place in museums, side by side with the 
stone hatchets of our primitive ancestors." 

It will be seen from the following that anxious speculations may 
justifiably be made as what would happen to human industry if, 
the supply of coal ever failing, furnaces had to be extinguished, 
and it could no longer generate at will that heat which is indis- 
pensable to it as the source of motive power. People sometimes 
try to set their minds at ease by such foolish proposals as that 
of replacing heat by electricity, though the only practical means 
we have of producing electricity on a large scale is precisely the 
steam-engine. 

Men are already beginning to ask whether it is not possible to 
utilize the immense forces whose activity is displayed in those 
movements of the atmosphere and of the waters, to which we 
referred just now, or if it will be necessary to draw the heat which 
we require from the source of all force, the sun itself. There, in 
truth, is a really incalculable fount of force, which is estimated to 
be equal to g^ millions of horse-power per square mile. This is 
already used by the Mouchot machine, but in a practically insuffi- 
cient manner. Even admitting the success of such an attempt, 
this force borrowed from the sun will have the disadvantage com- 
mon to it with the other natural forces, of not possessing the 
property of being generated where, when, and as we wish. It 
will not be manageable. The sun does not shine always or every- 
where. If on that orb is to fall the task of keeping our workshops 
going, England will be doomed as a manufacturing and industrial 
power; the fogs of the North Sea will become her winding-sheet, 
and men will henceforward have to journey into the heart of the 
Sahara to build their industrial capitals ! 



PRODUCTION. 107 

Still, to be able to avail ourselves of these natural forces, we 
only require to find the secret, on the one hand, of transporting 
them for long distances, so as to apply them to the point where 
they can be utilized, and, on the other hand, of storing up those 
forces which are developed only intermittently, so as to employ 
them at the moment when they are required. Electricity seems 
capable of rendering us this double service. The fact is already 
established that force can be transported, just as a despatch, by 
a simple telegraphic wire, but one made of copper and somewhat 
larger than the ordinary wires. Moreover, electricity can be stored 
up in accumulators that are already used to propel steamers, 
tramways, and balloons. 

In that quarter, perhaps, lies the germ of a beneficent revolution 
in industry. If some day motive force could be distributed from 
house to house, like water or gas, and could be obtained by the 
mere turning of a tap,^ we should see no more of those huge work- 
shops, which to the laboring classes are as unhealthy quarters, 
from the hygienic as they are from the moral point of view, and 
which, together with other disadvantages, render family life 
impossible. 

1 This is being done even now, to some extent, in Germany, where the 
small concerns still employ more hands than the large (in 1882, four millions 
as against three millions). See an article by Dr. Albrccht of Berlin in 
SchmoUer's Jahrbuch fur Gesetzgebung (1889), 13th series, Part II. — J. B. 



CHAPTER II. 
LABOR. 

I. On the Part played in Production by Labor. 

To achieve its ends, and principally to satisfy the necessities of 
existence, every living thing is obliged to do a certain amount of 
work. The seed has to toil to raise its covering, the hardened 
crust of the earth, and then breathe the air and feel the light. 
While clinging to its bed, the oyster opens and closes its shell in 
order to draw from the surrounding water the first elements of 
nourishment. The spider spins its web, the fox and wolf labor 
while they hunt their prey. Man is not exempt from this univer- 
sal law ; he, too, has to persevere and toil in order to supply his 
wants. As Xenophon says, " The gods sell us all good things at 
the price of our labor." Among plants this striving is unconscious, 
among animals instinctive ; with man it becomes a voluntary and 
conscious act, and its name is labor. 

But is there not some wealth that man can obtain without work, 
such wealth as nature lavishly bestows on him? 

It must first of all be observed that there is not a single p7'oduct 
which does not in some measure presuppose the intervention of 
labor. That follows from the meaning of the word "product," 
productum, "drawn from somewhere." But what could have 
performed this drawing or extraction except the hand of man? 
For the application of fruits to the satisfying of our wants, even 
those fruits which nature has given us, such as the bread-tree 
fruit, the banana, dates, or those shellfish which in southern lands 
are called sea-fruit, man must have given himself the trouble of 
gathering them. Now, this gathering is clearly labor, and under 
certain circumstances work of an exceedingly laborious nature. 
io8 



iPRODUCTION. t09 

It should further be remarked that a just conception is not usu- 
ally made of the important part played by labor, even in the for- 
mation of those products which are often very inaccurately termed 
" natural." We are too ready to believe that everything which 
grows on the earth — cereals, vegetables, fruit — all are due to the 
generosity of that alma parens reruni. As a matter of fact, most 
of the plants which supply man with food have been, if not created, 
at any rate so modified by the cultivation and the labor of hun- 
dreds of generations, that botanists cannot discover their original 
types. Wheat, maize, lentils, beans, have been found nowhere in 
the wild state. Even such species as are met with in a state of 
nature are wonderfully different from their cultivated congeners. 
Between the acid berries of the wild vine and our grapes, between 
the edible vegetables and succulent fruits of our kitchen-gardens 
and orchards and the tough roots and the bitter or even poison- 
ous berries of wild varieties, there is a vast difference ; so great, 
indeed, that these fruits and vegetables may be regarded as arti- 
ficial products ; that is to say, as actual creations of human indus- 
try. Here is the proof. If the constant labor of cultivation be 
relaxed for a few years, these products speedily degenerate ; i.e. 
they revert to a state of nature, losing all those virtues with which 
human industry had endowed them. 

It is true, however, that some wealth is not the product of 
labor, precisely because it is not a product ; i.e. it pre-exists before 
any act ofproductio??. I refer to the earth and all the organic matter 
or inorganic substances with which it supplies us, — the bubbling 
spring of water or petroleum, the growing forest, the natural 
prairie, the stone-quarry, the coal or metal mine, the waterfall 
suitable to turn a mill-wheel, the guano-bed deposited by sea- 
birds, the fishery banks teeming with fish, shellfish or coral ; in 
a word, the original source of the elements of all our wealth. 

These, surely, constitute wealth, and of the first rank in order 
of importance, but they clearly exist independently of any labor 
done by man. 

Still for a just conception of the part played by labor in pro- 
duction, we must add two further points. 



no PRINCIPLES OF POLITICAL ECONOMY. 

1. Such wealth does not exist, qua wealth, i.e. as useful and 
valuable objects, until human intelligence has been able, firstly, to 
discover their existence, and furthermore to perceive that they 
possess qualities which render them fit to satisfy any of our wants. 
Let us take, for example, any piece of land, say a corn-land in 
America. Why is this wealth ? Because some explorer or pioneer, 
following th€ course Christopher Columbus first opened out, has 
discovered the existence of this particular spot. Now the fact of 
discovery, whether it be applied to a New World or to mushrooms 
in a wood, always presupposes a certain amount of labor. 

2. Again, such wealth cannot be utilized, i.e. employed for the 
satisfaction of man's wants, until they have been subjected to 
more or less labor : in the case of virgin soil, till it has been 
cleared and opened out ; with a mineral spring, till it has been 
secured and bottled; with mushrooms or shells, till they have 
been gathered. 

Thus even with wealth which is termed natural, labor is seen 
to be a real agent of production ; for without it, such objects 
would be virtually non-existent for us, inasmuch as they would 
serve no purpose for us. In a word, it is labor which discovers 
and utilizes them. 

Of course, we do not imply by this that natural wealth obtains 
all its value from labor; we have already rejected that theory. 
According to Bastiat, all natural wealth is gratuitous, i.e. valueless, 
because such objects are the free gift of nature, and may be held 
to preserve that character in all the successive transactions through 
which they may pass. But the most ordinary observation suffices 
to give the lie to that theory, which, indeed, was merely conceived 
to defend landed property from the reproach the sociaHsts bring 
against it, of monopolizing the gifts of nature which should be the 
common property of all men. As value is based on utihty, all 
natural wealth, such as virgin soil, gold-bearing strata, guano, etc., 
possesses a value which exists before any act of labor. For a 
long time the government of Peru has had no other income but 
the sale of its guano. 



PRODUCTION. Ill 

II. How Labor produces. 

When we s^urvey the infinite variety of products which rise from 
under the fairy fingers of human industry, we are apt to imagine 
that labor is a power which is infinitely complex in its methods, 
and which defies all analysis. Yet it is nothing of the sort. 
Labor is merely a muscular force directed by some superintending 
intelhgence : it can have no effects but those of a motive force, 
and that, a very weak one ; viz., a movement, a change of place. 

This displacement may be a change of place of the object 
itself, or of its component parts. In the latter case, we say that 
there is a change of form, but every transformation amounts to a 
displacement. The exquisite shapes assumed by clay under the 
hand of the potter or the statuary, the rich and ingenious patterns 
wrought on lace by the fingers of the lace-maker, have no other 
cause than the arrangements, or rather, the displacements, of the 
molecules of clay or the threads of the tissue. All that man's 
labor can do is to stir, separate, reunite, insert, superpose, and 
arrange effects which are only different modes of motion. Take 
the production of bread, and pass in review the various acts of 
this production, — ploughing, sowing, reaping, winnowing, grind- 
ing, sifting, kneading, putting in the oven, — they are nothing but 
movements and changes of place effected upon matter. Analyze 
any other industry, and no other factor will be found ; for this is 
the only part man plays in the work of production, this is the 
limit of his power. All the profound transformations which are 
effected in the constitutions of bodies and which by modifying 
their physical or chemical properties conduce to production, — the 
mysterious evolution of a plant from its seed, the fermentation 
which turns a sugary syrup into alcohol, the chemical combination 
which turns out steel from the furnace iron, — these are not man's 
work. His part has been hmited to placing the materials in the 
required order : the corn in the earth, the vintage in the vat, 
the ore in the furnace ; nature has done the rest. 

Yet, however feeble this motive force may be, it is strong 



112 PRINCIPLES OF POLITICAL ECONOMY. 

enough to transform the world ; for it is exerted by an intelligence 
which knows how to turn it to the best possible use. Man's 
strength is relatively feeble when compared with that of animals. 
For instance, it is one-seventh of a horse's, though a horse is not 
seven times heavier, and is certainly not seven times larger. 

Still, we must say, that though man has less muscular force than 
the animals, he has generally more dexterity, and this he especially 
owes (as the very name shows) to that marvellous organ we call 
the hand. 

Every physical labor, properly so-called, must be preceded by a 
purely intellectual labor which we term ''^invention" ; this consists 
in discovering the practical means of turning to our ends the 
forces we have power over, and the objects to which they can be 
applied. Invention is not, as might be believed, a rare gift which 
can only be displayed by a few learned men ; on the contrary, it 
is intimately bound up with every act of production. The Paris 
knick-knack maker who fabricates for the shops some fresh New 
Year's Day toy at a farthing apiece, the joiner who tries to make 
the best use of a plank, are also inventors in the accurate sense 
of the word. There is no movement of a workman's arms or 
fingers, there is no combination or organization of labor, which 
has not been originally invented by some artisan. From this point 
of view we can say that human intelligence is the first, nay, the 
only agent of production. 

However, when once made, invention has the power of serving 
as the basis of an unlimited number of acts of production, or, 
rather, of re-production ; hence the difficulty which the legislator 
experiences in regulating and protecting the inventor's right of 
property. 

The words " invention " and " discovery " should not be 
confounded, and, indeed, popular speech has well distinguished 
between them. It is correct enough to say that Christopher 
Columbus discovered America, but we should laugh if we were 
told that he had invented it. Discovery is the revealing of the 
existence of an object which was previously unknown (such as a 



PRODUCTION. 



113 



land, a substance, a star, or a new property of some already dis- 
covered body) . Invention is the conceiving of some new mode 
of turning to account elements of which we are cognizant and 
over which we have power. Thus discovery may be regarded as 
the initial act in the process of production, the first link of the 
chain from whiich all the others are hung. Every land now 
under cultivation, all the wealth that we use, each force that we 
employ, must at some time or other have undergone this process 
of discovery. 

III. What Kinds of Labor should be called Productive ? 

Economic doctrines on this question of productive labor possess 
a very curious history. The title of " productive," which was 
primarily reserved for a single class of labor, has gradually been 
extended in its appHcation, and has ended in being indiscrimi- 
nately bestowed on all species of work. 

The school of the physiocrats confined the epithet "produc- 
tive " to agricultural labor (including therein, hunting, fishing, 
and mining), and denied it to every class of labor, even to manu- 
facture. The reason assigned was, that it is the first-named 
industries alone that furnish the materials for all wealth, and that 
all other labor is merely engaged in the working of these materials. 

This definition of the physiocrats was clearly too narrow. Raw 
material, as it is handed over to us by agricultural labor or extrac- 
tive industry, is usually altogether unfit for consumption ; it has 
to undergo numerous modifications which are effected by manu- 
facturing industry. Manufacture is the indispensable complement 
of the former labors, and without it the process of production is 
as incomplete as a play with the last acts suppressed. Of what 
use would the ore be at the pit's mouth, if it were not to go 
thence to the forge or the foundry? Of what use would corn be, 
if it had not to pass through the hands of the miller and the baker? 
Were it not for the weaver's labor, flax would be no more useful 
than the nettle. How, then, can we refuse to these labors the 



114 PRINCIPLES OF POLITICAL ECONOMY. 

title of "productive "? for without them all these kinds of wealth 
would be useless to us ; in other words, would not be wealth at all. 

It is altogether a mistake to think that agricultural and extrac- 
tive industries create wealth, whilst manufacture only transforms 
it. As we have already shown, the agriculturist himself merely 
transforms the simple elements he has borrowed from the soil and 
from the air. He makes corn from water, potassium, silicon, 
phosphates^ and nitrogen, just as the soap-maker fabricates his 
soap from soda and fatty bodies. 

Hence, from Adam Smith onwards no one has hesitate4 to 
include manufacture in productive labor. 

There has been a longer hesitation as to the labor of transport^ 
for the act of transport does not appear to effect any modification 
in the object. The bale of goods is the same at the station where 
it arrives as at the station whence it came. That, it is said, is a 
characteristic distinction from manufacturing industry. 

The drawing of such a distinction is scarcely philosophical, for 
every act of displacement effects an essential modification in 
bodies ; indeed, as we have just seen, is the only modification we 
can cause in matter. What we call transformation in manufac- 
ture is nothing but an arrangement ; in other words, a change of 
place of the component parts of substances. If we were to deem 
a displacement not to be a sufficient modification to be termed 
productive, we should have to refuse that appellation to extractive 
industries ; for what is the miner's work save the transporting of 
ore or coal from the bottom of the shaft to the surface of the 
ground ? Now what distinction can be established between such 
labor and the wagoner's work in taking this ore or coal from the 
pit's mouth and carrying it to the works, — unless we assert that 
displacement is productive when it is exercised vertically, but is 
no longer so when horizontal ? Besides, it is scarcely necessary to 
add, that just as manufacture is the indispensable complement 
of the agricultural and extractive industries, so, too, the labor of 
transporting is the requisite complement of its predecessors. 
What would be the use of stripping bark trees in Brazilian forests, 



PRODUCTION. 115 

of extracting guano from the Peruvian islands, of hunting elephants 
for their tusks in South Africa, if we had no sailors and carriers to 
convey thesd products to the places where they are to be used? 
What profits it a landowner to have the finest crop in the world, if 
the lack of a road prevents him transporting it ? It is just as if he 
had no crop at all. 

With regard to commercial industry the hesitation has been 
even longer. For it may be noted, that the process of trade 
reduced to its lowest terms, i.e. to the act of buying for the 
purpose of selling again (for that is its legal meaning), does not 
imply any creation of wealth. No doubt those who engage in it 
may make much money, but that does not add to the general 
wealth ; in truth, we shall see that the multiphcation of business 
men and middlemen may become a veritable scourge for modern 
societies. Thus, if commerce can be classed among productive 
labor, that can only be done with great reservations. 

On the other hand, we must observe that men of business are 
most usually occupied with the transport of goods, as is the case 
with shipowners who carry on the export or the import trade. In 
a certain measure, too, merchants may be regarded as the actual 
directors of transport all the world over : the carrying industry 
only executes their orders. Moreover, they preserve goods in the 
shape of stock in hand. They even subject them to certain 
modifications : the cloth merchant cuts his strips, the grocer 
roasts his coffee, etc. It is through them that the commodity 
comes into the hands of the consumer, and thus the cycle of pro- 
duction is closed. 

Finally, discussion has" been keenest with regard to services 
rendered, such as those afforded by the liberal pi^ofessions ; for it 
may seem strange to call " productive " the labor of the surgeon 
who amputates a leg, or of the executioner who cuts off a head. 
However, this last step has also been taken, and now without 
halting at antiquated and pedantic distinctions, we have come to 
place under the heading of productive labor all labor that in any 
wav whatever contributes to the satisfaction of the wants of man. 



Il6 PRINCIPLES OF POLITICAL ECONOMY. 

It is a logical consequence of the theory we have expounded, 
that services rendered, as well as material objects, should be placed 
in the list of articles of wealth. However, it is of little importance 
whether this new departure be accepted or not, and if material 
objects alone are allowed to rank as wealth. The term " produc- 
tive " should be taken in the widest possible sense. In the social 
organism, thanks to the law of the division of labor, there is such 
a solidarity between the labors of men, and they are so closely 
related, that it is impossible to separate them. 

Take the production of bread. We need not hesitate about 
classing as productive labor the respective toil of ploughmen, 
sowers, reapers, wagoners, millers, and bakers, beginning with 
Triptolemus, the legendary inventor of corn, and all his successors 
who have discovered the varieties of cereals and have invented the 
rotation of crops, or the methods of intensive agriculture. 

But we cannot restrict ourselves to pure manual labor. It is 
clear that the labor of the farmer or of the lord of the manor, 
though he may not himself have put his hand to the plough, is 
very useful for the production of corn, just as the shepherd joins 
in the production of wool though he does not shear the sheep 
himself. Neither can we ignore the work of the engineer who has 
prepared the plan of a system of irrigation, or of the architect 
who has constructed the farm- buildings and the barns. 

Must we stop here ? We might ; but have not the following 
also contributed to the production of corn, and should not their 
work, too, be termed productive ? I refer to the county police- 
man who has frightened away robbers, to the public prosecutor 
who has prosecuted them, and to the judge who has sentenced 
them ; nor should I forget the soldier who has protected the year's 
crop from even worse ravagers ; viz., foreign armies. What shall 
we say of the labor of those who have moulded the agriculturist 
and his men, of the instructor who has taught them their ideas of 
agriculture or has put them in the way of obtaining such knowl- 
edge, of the doctor who has kept them in good health? Is it a 
matter of indifference for the production of corn or any other 



PRODUCTION. 117 

wealth, that the workers be well taught and of sound constitution ? 
Are we to disregard the question as to whether they are well ad- 
ministered and governed, are in possession of order and security, 
and enjoy the benefits of a good government and good laws ? Are 
we justified in putting aside the kinds of labor which are the most 
alien from agricultural pursuits, those of writers, poets, and artists ? 
Are we to think that the taste for agricultural labors, and conse- 
quently the production of corn, cannot be usefully developed in a 
society by novelists who depict scenes of country life, or by poets 
who celebrate the pleasures of rural occupations and teach us to 
repeat, after the author of the Georgics, — 

" Fortunatos nimium sua si bona norint 
Agricolae " ? 

Where, then, are we to stop? We see the circle of productive 
labor extending to infinity, to the farthest bounds of society, like 
those concentric circles which spread on the surface of the water 
round the centre we have agitated, and which are lost in the dis- 
tance, without the eye being able to perceive the limit where they 
stop. No doubt the various kinds of labor we have just passed 
under review have not contributed to the production of corn in 
the same way ; some have acted directly, some only indirectly ; 
but none of them, beginning with the ploughman's toil and reach- 
ing to the occupation of the President of the Republic, could be 
suppressed without the cultivation of corn suffering therefrom. 

Still, though we cannot make definite distinctions between these 
various kinds of labor, yet, proceeding from the centre to the cir- 
cumference, we can establish a sort of hierarchy arranged, not in 
order of dignity, but according to their economic utility. 

The most important for the wealth of a country are labors of 
discovery and invention; then come agricultural pursuits, next 
manufacture, after that the labor of transport, and last of all com- 
merce and official employments. The fewer the people engaged 
in these last two kinds of labor, the better it will be. 

However elementary this classification may appear to be, its 



ri8 Principles of political economy. 

exposition is not a needless one ; for every day it is utterly misun- 
derstood by customs and by laws. Thus governments spend mil- 
lions on developing means of transport without first finding out 
whether there is anything to transport ; and thus, too, the number 
of people engaged in retail trade or in official employment in- 
creases every day, while agricultural pursuits are more and more 
abandoned. 

IV. On Pain as a Factor of Labor. 

All productive labor presupposes a certain amount of toil, and 
this is a law of supreme importance in political economy. Indeed, 
if labor was not a toil, pain or difficulty, all economic phenomena 
would be other than they now are. For instance, if men worked 
for pleasure, there would no longer be any 7^aison d'etre for individ- 
ual property so far as it may be regarded as the just recompense 
for labor and the necessary stimulus to human activity, which 
indeed is its principal basis. In that case the most serious objec- 
tion that can be brought against communism would fall to the 
ground. 

Fourier, the socialist, perfectly understood this : thus the pivot 
he gave to the future society that he proposed to organize was 
attractive labor. He asserted that labor was painful solely on 
account of a flaw in the organization of our modern societies, and 
he boasted in his phalanstery that he would make labor attractive 
for all men by free choice of avocations, variety of occupations, 
shortness of tasks, esprit de corps, emulation, and a hundred other 
combinations, some of them ingenious, some fantastic. 

Why not ? it may be said. Labor, taken as a whole, is only a 
form of human activity ; now activity has nothing painful about it. 
To act is to live ; it is absolute inaction which is a torture, and so 
cruel an one that when it is too prolonged in solitary confinement, 
it will kill the sufferer or turn him mad. There is no essential 
difference between labor and a number of exercises which are 
regarded as pleasures, though they often require an expenditure of 



PRODUCTION. 119 

strength higher than that needed by labor ; e.g. mountaineering, 
boating, gardening, even dancing. If Candide took his pleasure 
in cultivating his garden, and Louis XVI his in making locks, why 
cannot all men reach this stage of working for the love of it? 

The answer is, that man only takes pleasure in action in so far 
as he can obtain satisfaction from the mere exercise of this activity, 
in so far as this exercise is a natural function. But when this 
activity is seen in the light of the condition of an ulterior enjoyment, 
as the effort which he must make to achieve an aim fixed before- 
hand, — and that is the very essence of labor, — then it becomes 
painful. Between a boating man who rows for pleasure and a 
boatman who rows to earn his living, between a tourist who climbs 
a mountain and the guide who accompanies him, between a girl 
who spends her evening at a ball and the dancer who appears in a 
ballet, I see only one difference : the first in each pair row, climb, 
or dance solely to row, cUmb, or dance ; the others do so to earn 
their living. 

This difference, though a purely subjective one, causes the same 
modes of activity to be regarded as a pleasure by the former, as a 
toil by the latter. The man who follows a road only for a walk 
may take pleasure in it, if it presents any attractions, but he who 
passes over it night and morning only to reach a fixed point always 
finds it long and wearisome. 

Now for almost all mankind labor is a path upon which they 
enter for the necessity of living, and therefore, in accordance with 
the old curse in Genesis, they have labored " in the sweat of their 
face." Doubtless even the humblest labor has its joys, the joys 
of duty fulfilled and of a natural law voluntarily accepted ; but 
these austere pleasures will never be felt except by a few chosen 
spirits, and we should fall into the most chimerical optimism if 
we flattered ourselves with the hope of one day seeing all men 
labor solely for pleasure ; i.e. without requiring the stimulus of self- 
interest or the orders of compulsion. 

In order, then, to induce man to work and to counterbalance 
the feehng of pain which is occasioned by all labor, a higher force 



I20 PRINCIPLES OF POLITICAL ECONOMY. 

is needed : for the slave this is the scourge, for the free laborer it is 
the desire of satisfying his wants. Thus every man who labors is 
the prey to two conflicting feelings : on the one hand, the desire 
to satisfy some want or to obtain some enjoyment ; on the other, 
the wish to escape the pain caused by his work. According as 
one or other of these desires turns the scale, he will continue or 
will abandon his labor. 

As Stanley Jevons . ingeniously observes, the pain endured by 
the worker incessantly increases in proportion to the prolongation 
of the labor, while the pleasure he derives from it constantly di- 
minishes in proportion as his most pressing wants begin to be 
satisfied. Thus out of the two desires, the one requiring him to 
work, the other inviting him to stop, it is clear that the latter will 
sooner or later gain the day. Take a laborer drawing buckets of 
water from a well. Fatigue increases with each fresh bucket he 
has to draw ; on the other hand, the utility of each bucket 
decreases ; for if the first was necessary for drinking and cooking 
purposes, the second will only serve for watering cattle, the third 
for cleaning purposes, the fourth for watering the garden, the fifth 
for sprinkling the road, etc. At what number is he to stop ? That 
depends partly on his power of supporting fatigue, but chiefly on 
the scale of his wants. The Esquimau, who only uses water to 
quench his thirst, will stop at the first or second pail ; the Dutch- 
man, who cleanses his house right up to the roof, may have to 
draw fifty buckets before he thinks he is sufficiently provided with 
water. 

Productive activity can be greatly increased if the stimulus of 
future requirements is added to that of present and actual needs ; 
if, for example, in a land where water is scarce, the worker thinks 
of fining a cistern in readiness for the days of drought. But this 
faculty of weighing together an immediate pain and a distant 
satisfaction — a faculty which is really called foresight — belongs 
only to civilized races. It is characteristic of the French peasants, 
a stock which is laborious though frugal ; a fact which shows that 
they labor less to satisfy their present needs, which are very few^, 



PRODUCTION. 121 

than to provide for future wants, whether those of old age or of 
their families. 

V. On Time as a Factor of Labor. 

If all labor involves a certain amount of pain, it also requires a 
certain expenditure of time. We have already seen that this is 
one of the essential conditions of all production, a condition which 
is absolutely universal ; for Nature herself, as far as she is associated 
with man in the labor of production, is equally subject to it ; there 
must be long months of waiting before the seed, slumbering in the 
furrow, can become the ear, and long years before the acorn 
develops into the oak. 

Between the moment when labor begins and the date when it 
gives the expected results, there is a more or less long lapse of 
time ; but we may hold it to be a general law, that the longer this 
period is, the more productive the work should be. It may be 
short (a few hours are enough) for labors which enable man to 
live from day to day, from hand to mouth, such as hunting, fishing, 
or the plucking of wild fruits ; but for agricultural works, large 
industrial enterprises, or those engineering achievements which 
do honor to our time, such as mines, artesian wells, railways, tun- 
nels, canals, — for such as these the requisite time becomes 
enormous and proportionate to the hugeness of the results.^ How 
many years will go by between the first stroke of the pickaxe on 
the Isthmus of Panama and the passage of the first ship through 
the proposed canal? 

This condition of all productive undertakings is, as we shall see, 
one of the very chief causes of the importance of capital and of 
the privileged position of the holders of capital. Indeed, as he 
must live while he is waiting for the result of his work, the laborer 
can attempt nothing without the aid of certain advances, and these 
are supplied by the capitalist. 



122 PRINCIPLES OF POLITICAL ECONOMY. 

It is not enough to state that time is an indispensable factor of 
all production ; we must add, further, that man has only a limited 
amount of time to dispose of, not only because his life is short, but 
because numerous deductions have to be made from that. We 
must take into consideration the following : 

Firstly. Man cannot work every hour in the day. We must 
certainly deduct time for sleep and for meals, and experience has 
proved that nothing is gained from the point of view of production 
by extending the duration of the working-day. Custom and even 
law fix this at ten or twelve hours, and the famous formula of the 
" Three Eights " now tends to a general reduction to eight hours, 
which would give only a third of the day for labor. Compare 
with this the refrain of the old English song, — 

" Eight hours to work, eight hours to play, 
Eight hours to sleep, eight shillings a day," 

which has been brought into fashion again by the recent dis- 
cussions as to the limitation of the hours of labor. As a matter 
of fact, if we assign a third of the day for sleep, a third for labor, 
that is to say, for the requirements of economics, and the remain- 
ing third for the satisfaction of wants of another kind, but which 
are no less important for man's development, viz. the duties de- 
manded by family life, social intercourse, education, physical and 
intellectual recreation, — if such a portioning out of time is to be 
the normal one, there will obviously be no more space left for 
labor. 

Secondly. Man cannot work every day in the year, and there is 
no country in which there are not a certain number of holidays. 
England and America rigorously obey the order to observe the 
Sabbath ; the English, moreover, take Saturday afternoon ; all 
this, with some other holidays thrown in, amounts to rather more 
than eighty days a year. Russia, with its numerous saints' days, 
has even more. Countries which, like France, pride themselves in 
being above the sabbatical superstition, gain nothing by that ; for 
if they do not keep Sunday as a day of rest, they compensate for 



PRODUCTION. 123 

that by taking Monday, which is observed as a hoUday in many 
French trades.^ 

It is rare for even the most industrious of Parisian workmen to 
reach an average of 300 days' labor a year. Moreover, days of 
illness must be reckoned for. Here, again, we must remark that 
to increase the number of working-days and restrict the days of 
rest, would only result in a useless expenditure of man's productive 
strength. 

Thhdly. Man cannot work/^r all the years of his life ; we have 
in all cases to deduct the years of infancy, and also those of old age 
wherever that state is reached. Let us suppose that the normal 
length of life is 70 years ; let us suppose, again, that the period of 
productive labor begins at 18 and ends at 60, — both estimates 
being certainly exaggerated ; then, even granting such conditions, 
we should have to subtract 28 years out of the 70, or 40 per cent. 

It is clear that the power of productive labor of any individual 
depends on the relation between the two periods of his life : on 
the one hand, the unproductive period, with its two sections, 
childhood and old age ; on the other hand, the productive period. 
While really young or really old, an individual not only does not 
produce, but also consumes. From a purely economical point of 
view, it would be by far the best for each man to die just at the 
end of his productive, and before entering on his unproductive, 
period. If he dies before this, so much is stolen from his years of 
production j if he dies after this, his unproductive years are added 
to. It is in accordance with this line of argument that some peo- 
ples slay their graybeards. In all countries, without exception, 
the average length of man's life is far from reaching the above- 
mentioned figure, viz. seventy. It usually varies between forty 
and fifty years as the maximum. Thus the time during which the 
productive powers are exercised represents a half or at the most 
three-fifths of a man's life. 



1 This practice, which the French term " f^ter le lundi," is represented by 
the " St. Monday " of Enghsh compositors. — Translator' s Note, 



124 PRINCIPLES OF POLITICAL ECONOMY. 

From this point of view, the most favored country is that which 
can show the largest number of men between the ages of eighteen 
and sixty, or in the period of "useful life," as the saying is. Thus 
regarded, France is not unsatisfactorily situated. This distribu- 
tion of ages depends in particular on the average duration of life 
in any society. The longer that is, the greater the chance of a 
large number of adults. Yet highly erroneous conclusions might 
be reached from following too closely this line of argument. If 
in one country half the children died unweaned, and in another 
country the same number of children died at the age of fifteen, 
the latter country would certainly possess a higher average of 
duration of life, but still would be far worse off from a productive 
standpoint. In it the proportion of useless mouths would be 
much greater. Both on economical and even sentimental grounds, 
it would be better that every child lost at the age of fifteen had 
ceased to live when six months old.^ 

To recapitulate : Let us take a man who has worked from the 
age of 1 8 to 60 at the rate of 300 days a year and eight hours a 
day. When he reaches the age of 70, and looks back on the past, 
he will surely be able to say that he has spent his life well, yet 
he will have worked only 100,800 hours out of the 613,200 he has 
lived, or rather less than a sixth. 

After these considerations, it is not surprising that man seeks to 
economize time, and that the most active peoples of our day have 
taken as their motto, "Time is money." 

1 This argument seems to prove too much. There is no reason for stopping 
at six months, fx^ <pvpai rhp airavra vik^ \6yov. — J. B. 



CHAPTER III. 
CAPITAL. 

I. Oh the Part played in Production by Capital. 

It would appear that man's labor, aided by nature, ought to be 
sufficient for production. Animals, sure enough, have to meet the 
necessities of their existence by their own activity and the objects 
supphed to them by nature. Yet observation shows that if man's 
labor and nature are left alone face to face, they are extremely 
liiiely to remain eternally sterile. For human industry something 
more is needed ; to wit, a certain amount of wealth which has 
been previously acquired. 

Numerous authors have told the stories of men of the Robinson 
Crusoe type, and have striven to show us man grappling, unaided, 
with the necessities of existence ; but there is not one of them 
who has neglected to endow his hero with some tools or pro- 
visions which are usually saved from a shipwreck. These writers 
know well enough that without this precaution the story would 
have to stop after its second page, for their hero's life could last 
no longer. What was it that these Crusoes lacked? Had they 
not the resources of their labor and the treasures of a fruitful 
though virgin nature ? Yes ; but there was still something want- 
ing, and as they could not do without it, the writer had to see to 
their obtaining it. What was it ? Why, pre-existing wealth, capi- 
tal. This is the name given to the third factor of production. 

But we need not go so far afield as Robinson Crusoe to become 
convinced of the utility of capital. The heart of our civilized 
societies presents situations similar to his. In present-day com- 
munities there is no more difficult problem than the acquisition of 
anything when the aspirant possesses nothing. Take one of the 

125 



126 PRINCIPLES OF POLITICAL ECONOMY. 

proletariat, a man without any means, — what is he to do to produce 
what is necessary for him to Uve on, to earn his Hving, as we say ? 
A little reflection will show that there is no kind of productive 
industry that he can adopt, not even the poacher's occupation, for 
that would need a gun, or at any rate, snares ; nor a ragpicker's, 
for that would require a hook and a basket. Thus he would be 
as wretched, as helpless, and as surely destined to die of hunger as 
a Crusoe who had saved nothing from his shipwreck, were it not 
that the social organization came to his assistance by supplying 
him with the means of producing something by the aid of wealth 
previously acquired by others. This wealth he can obtain in 
various ways, either by contracting loans (a highly improbable 
proceeding, for only the rich find lenders), or by contracting for 
wages, putting himself in the pay of an employer, who on certain 
conditions supplies him with raw material and the implements 
necessary for production. Such is the usual position of the pro- 
letariat. Some socialists appear to think that such a state of things 
is abnormal, and is due to the defective organization of society. 
The case is quite otherwise. This quasi-impossibility of acquir- 
ing new wealth without the aid of pre-existing wealth is a natural 
law, which is the same for the savage as for the civilized man, the 
same in prehistoric times as it is now. 

Yet however great be the importance of this third factor of 
production, it is only the product of nature and of labor. Though 
nowadays it has acquired such weight as to rank equally with its 
fellow-workers, and sometimes even to take precedence over 
them, still we must not forget that logically, historically, and 
genetically, capital proceeds from the two prime factors. It is 
not an agent in production, as is too often said, but an instrument, 
an auxiliary, whose aid, it is true, man can no longer dispense 
with. Once upon a time, however, he was obliged to do without 
it. It is obvious that the first capital of the human race must 
have been formed without the help of any other capital. Man 
was once upon this earth as resourceless as Crusoe on his island, 
and had to solve the difficult problem of producing the first 



PRODUCTION. 127 

wealth unaided by any pre-existing wealth. That no doubt was an 
anxious moment to go through, analogous to the overcoming of the 
dead-stop of 'a locomotive. With his hands alone man had to set 
a-going the huge wheel of human industry. But, when it was 
once in motion, the most difficult part of the task was done, and 
henceforward the slightest impulse has been enough to give it a 
velocity which is ceaselessly accelerated. 

Yes ; in the history of mankind there has been a terrible crisis, 
a long and agonizing parturition; but after that, wealth once 
engendered and conceived has only had to develop and grow 
almost of itself. The first, nay the most shapeless of all created 
wealth, were it but the flint split in the fire of the anthropoid apes, 
immediately served as a means of making new wealth under 
slightly more favorable conditions, and these in their turn have 
served to create others, the facility of production increasing, so to 
speak, in a geometrical progression, in proportion to the amount 
of wealth already acquired. But we know that a geometrical 
progression, though growing with a dazing rapidity after having 
reached a certain point, increases terribly slowly during its first 
terms. Our modern societies, then, who, living on the accumulated 
wealth of a thousand generations, make almost a jest of multiply- 
ing wealth in all its shapes, ought not to forget how slow and per- 
ilous was the earliest accumulation of the first wealth ; they should 
think, too, of the many centuries through which the first human 
societies had to pass, through the dim ages of hewn stone and of 
polished stone, before they could put together their first stock of 
capital. Many peoples, no doubt, miserably perished while thread- 
ing that terrible gorge ; it was reserved only for a few picked races 
to effect a passage successfully and reach the rank of capitalist 
societies. Of them we may say ad augusta pe7' angusta ! 

II. The Meaning of the Productivity of Capital. 

As a general rule the part played by capital in production is 
not accurately understood. 



128 PRINCIPLES OF POLITICAL ECONOMY. 

People imagine that all capital yields a revenue in the same 
manner as a tree bears fruit or as a hen lays eggs ; i.e. that the rev- 
enue is a product made exclusively by capital, and then possessing 
a separate existence. What largely aids in the propagation of 
this false notion is the fact that the greater part of capital is seen 
by us in the shape of government securities, shares, or debentures, 
from which, according to the customary formula, coupons are de-. 
tached which stand for the revenue. For six months, three months, 
or a year, according to the nature of the stock, the coupon grows ; 
when the day of payment comes, it is ripe and can be detached. 

Furthermore, just as after a fruit or a seed has been gathered, 
it can be sown again, and a fresh plant be formed to bear more 
fruit, just as after an egg has been laid it can be put under a sit- 
ting hen, and a chick be hatched in its turn to lay more eggs, — 
so by investing this coupon at interest a new capital can be formed 
which will yield new dividend coupons for interest ; in this manner 
men imagine that they see capital growing and reproducing itself 
in accordance with the same laws as regulate the reproduction of 
the species of the vegetable and animal kingdoms. But the law 
of compound intej-est is wonderful in quite another fashion than 
the increase of herrings or of mushrooms, which is so often quoted 
with reference to the theories of Malthus and Darwin. A mere 
farthing put out at compound interest on the first day of the 
Christian Era would have yielded by now a value equal to that of 
some thousand millions of globes of solid gold of the volume of 
our earth : the example has become classic. 

We must pack off to limbo all this phantasmagoria which so 
strongly and so naturally stirs the bile of the socialists. It is all 
pure moonshine, this attribution to capital of some productive and 
mysterious power peculiar to itself alone ; this generative faculty 
is a mere figment. Whatever the popular saying may assert, 
money bears no children ; ^ no more does capital. Not only has 

1 We may compare with this the saying of Carlyle : " Were a pair of breeches 
ever known to beget a son?" (^Life in London, I, 193, letter to Sterling, on 
the Church.) — J. B. 



PRODUCTION. 129 

a bag of gold pieces never produced a gold coin, as Aristotle 
observed long ago ; but a bale of wool or a ton of iron has never 
borne a flock of wool or an atom of iron. If sheep do reproduce 
other sheep, as Bentham said, imagining that he refuted Aristotle 
by saying so, it is not because sheep are capital, but merely 
because they are sheep; for nature has endowed living beings 
with the power, never enjoyed by capital, of reproducing individ- 
uals similar to themselves. But capital is dead matter, and is 
absolutely sterile ; it enables labor to produce, but of itself pro- 
duces not a jot. Therefore all that men call the revenue, or the 
product of capital, is, in reality, only the product of labor. 

The illusion is caused by the sight of many people living on 
their income without working, and even rapidly increasing their 
fortune. We ask, Whence does this income spring? It is cer- 
tainly not the product of their labor, for they are engaged in no 
industry or occupation ; nor is it from any natural agency, for on 
the terms of the hypothesis they are not landowners. Can it not, 
then, perhaps, proceed from capital itself which would thus spon- 
taneously produce it? In reality, this income is altogether the 
product of labor, of labor which is not seen, but can be readily 
traced if well sought for ; it is the labor of those who have bor- 
rowed the capital of the fundholders and have employed it pro- 
ductively. The interest coupons of coUiery shares or debentures 
in coal mines represent the value of tons of coal extracted by the 
labor of miners, and the coupons of railway shares or debentures 
stand for the results of the joint labor of all who have co-operated 
in the transport of commodities. It may come to pass that capi- 
tal, after reaching the hands of the borrower, has been wasted or 
unproductively consumed ; yet in that case the interest received 
by the lender represents the product of some labor, if not that 
of the borrower, at least that of some third party. For instance, 
the coupons of government bonds and securities do not betoken 
wealth produced by the laborer or the industry of the State, for 
the State does not produce, and is wont to spend unproductively 
most of the capital lent it ; no ! these coupons stand for the 



130 PRINCIPLES OF POLITICAL ECONOMY. 

product of the labor of all citizens, which in the shape of taxes 
has been yearly poured into the treasury chests, and has thence 
passed into the hands of stockholders. 

Thus what we wanted to prove stands thus : the receipt of a 
fixed income is simply the levying of a quota on the product of 
some one's labor, a levy which may perhaps be justified by the 
assistance capital has afforded labor. But that is not the point in 
question. 

III. The Distinction between Wealth which is Capital and 
Wealth which is not. 

The idea of capital is clear enough to us all. In looking over 
our property we at once perceive that it can be divided into two 
classes of goods. Those in the first division are destined to ob- 
tain for us in a direct manner some enjoyment or some satisfac- 
tion ; e.g. food, clothing, dwelling-houses, ornaments, riding-horses, 
pleasure parks, pocket-money. The second category comprises 
objects whence we obtain an income ; such as farms, places of 
business, docketed securities, factories, machines, tools, stock in 
trade. We make use of the former for our personal ends, or for 
our family requirements ; from the latter we try to get profit. For 
this last-named category of wealth we reserve the name '^capital." 
This distinction between wealth which is capital and wealth which 
is not appears to be very simple. But when we look at it closer, 
we find that it bristles with difficulties, so that the definition of 
capital presents one of the most arduous problems in political 
economy. 

We must begin by remarking that a great number of objects 
which have different properties, and therefore varied utilities, can 
figure equally well under either of the two classes, according to 
the use to be made of them. Thus the determination whether an 
object is, or is not, to rank as capital often depends far less on the 
object's nature than on its destination. 

A diamond is capital when used by a glazier for cutting panes 



PRODUCTION. 131 

of glass ; it is not capital when set in a ring or an earring. In the 
first case it is employed on account of its hardness ; in the second 
because of 'its brilliancy. An egg is capital when given to a hen to 
hatch for the reproduction of chickens ; it is not so when put into 
a frying-pan to make an omelet. In the one case we use the 
Ufe-giving power which it contains in the germ state ; in the other 
we only avail ourselves of the nutritious matter it is composed of. 
Coal is capital when thrown into the furnace of a steam-engine, 
for the utilization of the motive force it contains in the latent 
state j it is not capital when stirred on a hearth-grate merely for 
the sake of giving us warmth. There is no need to give further 
instances of these contrasts, which might be indefinitely multi- 
pHed. We might almost say that there is no product which can- 
not, somehow or other, be applied for a twofold end. 

This is particularly the case with a highly imjiortant class of 
products : all those which under the shape of victuals, clothing, 
shelter, or any sort of provisions, tend to support man's produc- 
tive strength. These also are of twofold application, and accord- 
ing to circumstances are or are not capital. For the laboring 
man, food is surely no less indispensable for the act of production 
than are tools or raw material ; the nitrogen and the carbon (which 
he consumes as meat or as bread) play just the same part as the 
coal which is burned in a steam-engine, and are themselves trans- 
formed into muscular force. Therefore all food, when regarded 
as victuals, stored for future use, is placed by most economists 
under the head of capital. On the other hand, has any one dining 
at a restaurant or in the bosom of his family ever regarded the 
dishes appearing during the course of the meal, were they even 
in the shape of tinned meats, as implements of production and as 
fuel for his bodily mechanism? No ! he only desires them to 
appease his hunger or to tickle his palate. 

Stanley Jevons asserts that stores of food are typical capital, 
and are its essential and primordial manifestations whence all the 
other forms have sprung. Indeed, his premise is, that the true 
function of capital is to support the worker while waiting for the 



132 PRINCIPLES OF POLITICAL ECONOMY. 

moment when his labor can give good results. This definition of 
the function of capital necessarily requires it to exist under the 
shape of means of subsistence, of advances. Of these, all tools, 
machines, railways, etc., would be only derivative forms, for their 
production takes some time, perhaps a considerable period ; and 
hence they must have required a previous amount of advances in 
the shape of stores of food. It is to this primary form, therefore, 
that we have always to return. 

The simplicity and elegance of this theory make it attractive. 
Nevertheless, though we have previously expounded and defended 
it in \}i\t Journal des Economistes, October, 1881, we now think 
that it is rather too exclusive. Time certainly forms one of the 
essential conditions of, or, say, a limit to, every act of production. 
(We have already dwelt on this fact.) Still, it does not seem 
correct to draw from this the conclusion that all productive labor 
necessarily demands a certain advance in the shape of food. 
Man did not put off entering on agricultural pursuits till he had 
stored up provisions to last for a year ; he had sown and tilled the 
ground in the interval between his hunting expeditions. Before 
attempting to pierce the Isthmus of Panama, the Company did 
not amuse themselves with heaping together eatables to feed an 
army of laborers for eight or ten years. They had to live on the 
supplies iwxviv^^^ pa7-i passu by the labor of the rest of mankind. 
Nothing, either in primitive or in civilized societies, resembles 
these vast hoardings of food which Stanley Jevons regards as 
capital /^r excellence ; on the contrary, the whole of the provisions 
of a country is produced day by day. Besides, it is not our 
opinion that the only function of capital is to maintain the worker 
till his labor gives actual results. The flint picked up and cut by 
quaternary man, the ox yoked to the plough by the first agricul- 
turist, certainly did not fulfil that function, but nevertheless they 
were decidedly capital.^ 

1 See Dr. Bohm-Bawerk, Kapital-Zins, Vol. II, Bks. iii, iv, ii, D, pp. 
337 ^^9- {Smart, pp. 319 seq.), compared with Bks. i, iii, 61 {Smart, p. 
57). -J. B. 



PRODUCTION. 133 

Another distinction which is often employed in popular speech 
has been adopted by Professor Walras (as it was by his father), — 
the distinction between what is lasHng and what is consumed on 
the first time of using. From this point of view we should reckon 
under the head of capital heavy family furniture and jewels. This 
criticism can hardly be deemed scientific ; were it adopted, we 
should have to erase from the list of capital coal, which is con- 
sumed on the first time of using, and is certainly the typical capital 
used by modern industry, and the place of honor would be filled 
by the great Pyramid of Egypt, whose only use has been to preserve 
a mummy or two. This question of durabihty will recur in the 
next section, when we distinguish between fixed and circulating 
capital. 

To return from this digression. Let us consider those objects 
which under no circumstances and in no shape could be used for 
production ; e.g. jewelry, lace, pictures, theatrical costumes, fancy 
ball-dresses, expensive carriages and horses, tobacco or absinthe, 
photographs and novels ; even these, if we take a subjective or 
individual standpoint, may be regarded as capital, and are so 
regarded every day of our lives. For are there not sellers of all 
the products just enumerated? Are there not goldsmiths, dress- 
makers, costumers, furniture-dealers, horse-dealers, photographers, 
book-sellers, tobacconists, and publicans ? Do not they all regard 
the goods which fill their places of business as their capital, and 
are they not justified in so doing, inasmuch as such articles are 
the instruments of their industry, and furnish them with their 
income ? 

We are therefore led to divide capital into two species : capital 
which really serves to produce new wealth, "productive" capital, 
as we shall term it ; and capital which merely yields an income to 
its owner, or " lucrative " capital, as we shall designate it. This 
epithet has been accepted by Dr. Bohm-Bawerk (see, in the Revue 
d'economie politique for March and April, 1889, an article on "Une 
Theorie nouvelle sur le capital "). Thus, every article of wealth, 
even a fancy-ball costume, or carnival dress, may act as lucrative 



134 PRINCIPLES OF POLITICAL ECONOMY. 

capital by means of hire or trade ; whereas the wealth, that from 
its very nature can be used as productive capital, is limited in 
extent. 

In the first edition of this work we passed in review the various 
kinds of wealth, and discussed their respective rights to the name 
of capital. We have felt obliged to omit that long excursus, which 
merely turned on questions of definition, and to content ourselves 
with the general idea set forth in the present text. But a few 
kinds of wealth require a more special explanation. 

In popular speech, the term " capital " is apphed (in contradis- 
tinction from real property) to all movable effects such as stocks, 
shares or debentures in industrial companies, mortgages, notes of 
hand, etc. Such goods are really not productive capital in the 
scientific sense ; nor are they true wealth, seeing that they are 
merely liens on other people's property. No doubt they yield an 
income to the holders ; but the income gained by the creditor is 
taken from the debtor's pocket, so that the country is none the 
richer by the transaction, unless, indeed, the shares are foreign 
ones. In this case, to avail itself of such property, the country 
takes up the same position as any private investor. 

Inversely, every day language never gives the appellation of 
" capital " to real property, such as lands or houses. Yet there 
are cases in which they fully deserve that title. We ought 
never to call land capital when we are speaking of virgin soil, 
the primary stock granted us by nature, — for that would be to 
confound 7iature with capital, — but from the time that this soil has 
been modified by man's labor, and appears in the shape of land 
which has been cultivated, opened out, enclosed, planted, irrigated, 
and so forth, it falls perfectly well under the definition of capital ; 
for it is a product of nature and of labor, and undeniably serves 
for the production of new wealth. Houses, again, are only 
" lucrative " capital when used as dwelling-houses, but they are 
" productive " capital when in the shape of buildings for pro- 
duction ; e.g. farms, factories, or shops. 

Popular speech is correct in giving the name of capital to 



PRODUCTION. 135 

acquired capacities, to the knowledge needed for certain profes- 
sions, and to education in general.^ Obviously we must beware 
of classing a§ capital those personal quahties and faculties which 
are only one of the forms of human activity ; for that would con- 
found labor with capital. But as soon as man's natural faculties 
have been modified and worked on so as to take the shape of 
acquired knowledge, they can then be termed productive capital ; 
for in that case they are the product of nature and of labor, and 
clearly serve in the production of new wealth. 

Money, or coin, in its capacity of instrument of exchange, ought 
to rank as '' productive " capital, certainly not in a high place, 
but at least on a par with weights and measures, balances, etc., 
and all other means of facilitating exchange. For a country to be 
in a position to produce, it requires a certain amount of money, 
just as it needs a certain number of carts. From the subjective 
or individual point of view money is only lucrative capital, when 
it is employed for purposes of profit, and it is not capital at all 
when it is merely spent. 

IV. The Durability of Fixed and of Circulating Capital. 

Capital may last for more or less time. According as its dura- 
bility is longer or shorter, it will serve for a larger or smaller 
number of acts of production. 

The name " circulating " is given to capital which can be used 
only once in consequence of its disappearance during the very act 
of production ; for example, corn which is sown, manure which is 
buried in the soil, coal which is burnt, cotton which is spun. The 
name " fixed " is applied to capital which can serve for several acts 
of production : it includes the most fragile implements, such as a 
needle or a sack ; and the most durable, such as a tunnel or a canal. 

It is right to remark that Adam Smith, who first employed these 
terms, '^ fixed " and " circulating " capital, used them in a some- 
what different sense. He understood by circulating capital that 

J See above, p. 41 (Note on Immaterial Wealth). — J. B. 



136 PRINCIPLES OF POLITICAL ECONOMY. 

which gave an income only on condition of its circulating, i.e. 
changing hands or being exchanged, e.g. commodities and money ; 
that capital was fixed which returned an income without being ex- 
changed and while remaining in the same hands, e.g. a factory. On 
this theory we should be compelled to say that coal burnt in his 
furnaces by a manufacturer is fixed capital, for it is not intended 
for sale ; whereas houses, the property of a building society, which 
buys them to sell them again, should be regarded as circulating 
capital. In other words, to Adam Smith the essence of circulating 
capital lay in the change of ownership ; in the definition we have 
adopted, it is to be found in the change of nature. Adam Smith 
took the subjective or individual standpoint ; we take the objective 
and social point of view, just as we did when defining capital itself. 
When the capital has a sufficiently great durability and can 
serve for a good many acts of production, it is not necessary, for 
its employment to be productive, that a really large amount of 
labor should be economized in each act of production. However 
small this saving may be, yet as it is repeated at every act, it soon 
reproduces the value of the expended capital or the amount of 
labor spent in producing the capital. Once that is done, the 
capital is redeemed, to use the time-honored expression; that is 
to say, after this all the aid it grants labor is gratuitous ; hence- 
forward the labor economized is a net gain for society. It is thus 
that an aqueduct, a canal like that at Suez, or a tunnel such 
as those through the Alps, can last as long as the shape of the 
continents. However large, then, be the labor required for their 
construction, and however small be the amount of labor annually 
saved by their instrumentality, the time will necessarily come 
when the labor saved will equal the labor expended. Starting 
from that date, and enduring for all the centuries still destined for 
humanity, the service rendered by capital will be henceforward 
gratuitous. Capital of great durabihty is therefore usually more 
advantageous than the other kind, and the progress of civilization 
constantly tends to replace the less durable by the more durable 
capital. 



PRODUCTION. 137 

Still we must not forget : Firstly^ that the formation of such 
capital requires the more labor the greater the durabihty is to be ; 
and that consequently there is a balance to be preserved. But 
this increase in the amount of labor expended is not generally 
proportional to the greater durability which is obtained, and this, 
very circumstance renders profitable the employment of such, 
capital. 

Secondly. The formation of fixed capital demands a present and 
immediate sacrifice in the shape of a large amount of labor or of 
expenses, while the remuneration which is destined to accrue in 
the form of economy of labor or of expenses is very remote, and 
is the more distant in proportion to the durability of the capital. 
If the construction of a ship canal, such as the Panama Canal, for 
instance, is to cost eighty million pounds sterling, and will not be 
paid off till the lapse of fifty years, we must weigh against that an 
immediate sacrifice ; to wit, the disbursement of that large sum, 
with a return for it for which we shall have to wait half a century. 
Now, to make up such a balance, men must be endowed to a high 
degree with the power of foresight and with boldness, and have a 
remarkable trust in the future, — conditions which are only found 
united in very civilized communities. 

Thus it is that very little fixed capital is employed by peoples 
whose social state is not advanced, and whose political constitution 
affords only a slight degree of security. All their wealth takes the 
shape of articles of consumption or of circulating capital. A 
good example of this is presented by a comparison of the princi- 
paHties of India or Mussulman countries at large with our own 
European societies. 

Yet, however great be this faculty of foresight, even in the most 
favorable circumstances, it will not exceed certain limits. For 
example, a private person or a company, or even a State, would 
never consent to advance capital which would not be paid off 
until the end of two centuries, even though that capital might last 
for a thousand years, and thus be capable of rendering gratuitous 
services for a clear eight hundred years. Why? Because results 



138 PRINCIPLES OF POLITICAL ECONOMY. 

which are not to be produced till the end of so long a period 
do not fall within the scope of human predictions. It may, there- 
fore, be laid down as a rule, that the employment of any capital 
which cannot repay itself in the course of a century at the very 
outside is not to be regarded as productive. 

Thirdly. Another disadvantage of fixed capital may lie in the 
fact that if its durability is too great, it runs the risk of becoming 
useless in the long run, and therefore great prudence must be 
exercised in the predictions just alluded to. The material dura- 
bility of capital is of little importance ; what alone is of interest to 
us is the lasting nature of its utility. Now, in certain conditions, 
we can reckon on the former ; there is never the same absolute 
certainty as to the latter. We know that utility is unstable, and 
that at the end of a certain time what was thought to be the most 
firmly established may be called upon to disappear. We have no 
guarantee when we pierce a tunnel or excavate a canal that traffic, 
a century or two hence, may not take another route. Now, should 
such a revolution in affairs take place, and the capital sunk in the 
tunnel have not yet been redeemed, its value will be rendered 7iil, 
and a certain quantity of labor will have been uselessly expended. 
Being conscious, then, of our ignorance of .the future, it is prudent 
not to build for all eternity ; and from that point of view the use 
of too durable capital must be regarded as a hazardous enterprise. 

V. How Capital is formed. 

Capital being acquired wealth can, like any other wealth, be 
formed only by the two original factors of all production, — labor 
and nature. (Karl Marx's phrase that capital is " crystallized 
labor" would be accurate did he not purposely omit the part 
played by nature in the formation of capital, always adhering to 
his principle that all value springs from labor alone.) It is enough 
to run through the list of all the kinds of capital we can think of, 
— tools, machines, works of art, and materials of all classes, — to be 
satisfied that they can have no other origin than that just mentionedc 



PRODUCTION. 139 

We need not have stopped at so clear a matter as the formation 
of capital had not some people thought fit to see in the process 
a new agent of a special nature, which they call saving. From 
this, they say, all fortunes arise. Now, what is this newcomer? 
Is it a third original factor of production, which we have perhaps 
forgotten ? No. Labor and the forces of nature are the only con- 
ceivable factors. Is it, then, a form of labor ? Some people think 
so. But what is there in common between the two processes? 
To labor is to act ; to save is to abstain. This opinion that 
saving is " only a form of labor " is held by M. Courcelle-Seneuil, 
and is set forth in the article on the subject in the Journal des 
Economistes for June, 1890 j but as the author himself confesses that 
the only object of the theory is to justify the social function of capi- 
talists and the services they render, we need not stop to discuss it. 

From a logical point of view, it is impossible to conceive how 
a purely negative act, a simple abstention, can produce anything. 
It is useless for Montaigne to say that he " knows no action so 
potent and effective as this inaction." That may be true in 
morals, but it does not explain how this inaction can create even 
a pin. When wealth is said to have been created by saving, the 
only meaning is, that if this wealth had been consumed as soon as 
born, it would not be existing still. That is obvious. But accord- 
ing to such reasoning, we should have to allow that an object is 
produced each time we refrain from using it ; and non-destruction 
would have to be reckoned as one of the causes of production^ a 
curiosity of logic, to be sure. If a child asked whence chickens 
came, and was told that to produce chickens he must refrain from 
eating eggs, we should be justified in regarding the answer as an 
excellent advice, but as an exceedingly absurd explanation. We 
are not a whit better satisfied by the train of reasoning which 
makes saving the original cause of the formation of capital. 

This idea has taken its rise from the employment of money. 
In our modern societies '' to save " means to put in reserve a cer- 
tain quantity of money. Now the man who places pieces of money 
in a drawer most certainly creates neither wealth nor capital (for, 



140 PRINCIPLES OF POLITICAL ECONOMY. 

on the contrary, he withdraws some wealth from circulation) ; but 
since each coin stands for a sort of ticket which gives its pos- 
sessor the right of levying an equal value on the mass of existing 
wealth, it is clear that the man who accumulates these pieces of 
money creates wealth for himself just as if he was producing it by 
his own labor. But that is entirely from the individual point of 
view. 

Hoarding, in truth, is applied to money, but apart from that it 
is doubtful whether saving has ever produced any capital. The 
stone axe cut by quaternary man was doubtless not the result of 
saving. Certainly for its fabrication man must have succeeded 
in obtaining the requisite amount of leisure, and in withdrawing 
himself from subjection to every-day labor. But were these leisure 
hours afforded by saving in the shape of unconsumed and stored- 
up provisions? On the contrary, it is probable that early man 
was as little inclined to limit his consumption as the unskilled 
laborer of to-day, who only earns just enough to keep himself from 
starving. No doubt he produced his first capital at the end of a 
successful hunt which had brought him in more than usual, or 
only in his spare moments. Are we to suppose that to effect their 
passage from the hunting to the agricultural state, tribes had 
first of all to save enough food to last them for a whole year? 
Nothing is less probable. They only domesticated their cattle, 
and this, their earliest capital {cheptel), combined with a freedom 
from providing for the morrow, first gave them the leisure neces- 
sary for long undertakings. But, as Bagehot well asks (^Economic 
Studies, "Growth of Capital," pages 166, 167), how does a herd 
or flock represent any saving? Has it entailed privations on its 
possessor? On the contrary, thanks to the milk and the meat, he 
has been better fed ; thanks to the wool and the hide, he has been 
better clothed. After all, we are not dreaming of impugning the 
importance or the utility of saving ; we shall come to it again when 
we deal with the use that should be made of wealth. But though 
saving plays an important part in consumption, it has nothing to 
do with production. That is not its sphere of action. 



Part IL — The Social Conditions of Production. 

the social organism, 

Up to the present we have studied production as it might have 
been seen to act on Crusoe's island ; i.e. production effected by 
man in isolation. 

But that is merely the hypothesis of a novehst ; for man is a 
sociable being, and production is always more or less collective 
work. It is no longer individual, but collective production that 
we must now examine. This social production is, in the first 
place, subject to all the conditions of individual production pre- 
viously discussed ; viz., environment, ground, time, raw material, 
etc. ; for it can employ no other agents or instruments than those 
already familiar to us, — labor, land, and capital; but besides 
these it is regulated by other conditions which are peculiar to it, 
and are bound up with the mere circumstance of life in common. 

These conditions or modes of organization of social production 
are four in number, — Association, Division of Labor, Exchange, 
and Credit. 

These are not actually four different and distinct modes of organ- 
ization ; for they overlap at many points. Credit is only a partic- 
ular form of exchange ; exchange necessarily presupposes division 
of labor, and that, in its turn, an association of some kind, whether 
conscious or unconscious. But the converse is not true. 

Association may exist without division of labor, when each 
member of the association joins in the common work in the same 
manner and by the same acts, e.g. workmen raising a weight, 
rowers at their seats, sailors turning the capstan. Division of 
labor, in its turn, may occur without exchange, as in the bosom of 
a family, or within a workshop. Again, exchange is perfectly 

141 



142 PRINCIPLES OF POLITICAL ECONOMY. 

independent of credit, which is, indeed, only organized in a small 
number of societies. Association, division of labor, exchange, and 
credit appear then as successive forms in the organization of social 
production, and respectively increase in complexity. 

We might be disposed to believe that these conditions of social 
production, unlike those studied in the preceding Book, have no 
necessary or even natural characteristics, and might be inclined to 
regard them as the result of arrangements which are more or less 
ingenious, but are still artificial and accidental. But that would 
not be a correct view of the matter. These relations of associa- 
tion, division of labor, exchange, and credit, in spite of the endless 
varieties of form they may assume, are by nature necessary, univer- 
sal, and permanent. They arise spontaneously at all times and in 
all countries, without any previous concert or premeditated delib- 
eration. They are found in some shape or other in regions which 
are far beyond the pale of political economy, and even in the laws 
that govern the evolution of all living things. 

Edgard Quinet, in La Creation, remarks : " On the one side the 
school of the historians, on the other the men of science, have each 
done their work separately without knowing one another and without 
a mutual understanding ; yet this work proves to be one and the 
same. If I dare to say so, this meeting is the greatest intellectual 
event of our time." 

Men of science, in fact, teach us that each living being is itself 
an association of millions or thousands of millions of individuals, 
— more numerous, therefore, than the largest human societies, — • 
infinitely small individualities, which, as Claude Bernard says, 
" are united but yet remain distinct, like men holding one another 
by the hand." 

They tell us, too, that each organized being is subject to the 
law of the physiological divisioii of labor. In very low organisms 
all the functions are merged together in a shapeless and homo- 
geneous mass ; but as the scale of organization rises, the various 
functions of nutrition, reproduction, locomotion, etc., become 
differentiated, and each comes to possess a special organ. In fact, 



PRODUCTION. 143 

we may say, the more divided is the physiological labor, the 
higher is the rank of the organism. "This division of labor first 
dwelt on by political economists as a social phenomenon, and 
thereupon recognized by biologists as a phenomenon of living 
bodies, which they called the ' physiological division of labor,' is 
that which in the society, as in the animal, makes it a living whole. 
Scarcely can I emphasize enough the truth that, in respect of this 
fundamental trait, a social organism and an individual organism 
are entirely alike." — Herbert Spencer, Principles of Sociology 
(3d ed.). Vol. I, page 440. 

We learn, too, that each living being is the seat of a perpetual 
movement of exchange and circulation, an exchange of services 
and even of materials ; for it is impossible for a function of the 
organism to become specialized in one single organ, as we have 
just seen, unless the other parts also fulfil other functions which 
are essential to life and communicate the ensuing benefits to the 
first-mentioned organ. " A respiratory surface to which the 
circulating fluids are brought to be aerated can be formed only 
on condition that the concomitant loss of ability to supply itself 
with materials for repair and growth, is made good by the develop- 
ment of a structure bringing there such materials." — Herbert 
Spencer, Principles of Sociology (3d ed.). Vol. I, page 439. 
Indeed, Herbert Spencer remarks that, " the entire class of men 
engaged in buying and selHng commodities of all kinds, on large 
and small scales, and in sending them along gradually formed 
channels to all districts, towns, and individuals, — is along with 
these channels fulfilling an ofiice essentially like that fulfilled in a 
living body by the vascular system." — Principles of Sociology, 
Vol. I, page 484. 

Finally, they inform us that ci^edit itself is indispensable for the 
due working of living beings as it is for that of the social organ- 
isms. For, as Herbert Spencer says (^Principles of Sociology, Vol. 
I, pages 533, 534), ''If an organ in the individual body or in the 
body politic [is] suddenly called into great action — that it may 
continue responding to the increased demand, there must be an 



144 PRINCIPLES OF POLITICAL ECONOMY. 

extra influx of the materials used in its actions ; it must have 
credit in advance of function discharged. In the individual 
organism this end is achieved by the vaso-motor nervous sys- 
tem ; . . . through the vaso-motor nerves going to all inactive 
parts there is sent an influence which slightly constricts the arte- 
ries supplying them thus diminishing the flow of blood where it is 
not wanted, that the flow may be increased where it is wanted." 

Perhaps these analogies between social and biological laws may 
have been somewhat exaggerated [they have been carried to 
the minutest detail in Herbert Spencer's Principles of Sociology, 
Vol. II, and Schaflle's work on the Ban und Leben des sozialen 
Kdrpers\ ; but they are striking enough to justify us in regarding 
these modes of social production as manifestations of a real 
natural law. 



CHAPTER I. 
ASSOCIATION. 

I. The Various Forms of Association. 

"To-day, Good Friday," wrote Fourier in 1818, "I have found 
the secret of universal association." He certainly had not dis- 
covered it, though he set it forth with remarkable vigor; for 
association is not one of those phenomena that require discovery. 
As we have already proved, it is a natural law, perhaps, indeed, 
the most general of all those which obtain in the universe ; for it 
governs not only the relations of men living in society, but also 
those which unite the worlds in the solar systems, the molecules 
or the cells in the inmost constitution of lifeless or organized 
bodies, and even the logical relations which rule our thoughts. 
The very animals are acquainted with association, and some of 
their societies have always had something to teach men and some- 
thing to excite their wonder, e.g. the bees, the ants, and the beavers 
(see M. Espinas' fine work on the Societes animales). 

Association is indispensable for all labors which are too great 
for individual strength, were it only the raising of a weight. It 
was by this co-operation that men of olden times were able to 
erect the Cyclopean walls, or the Pyramids of Egypt, and to move 
galleys with three or four banks of oars ; Egyptian bas-reliefs show 
us hundreds of men attached to a single rope, and moving in 
harmony with the rhythm of a brass instrument. 

In our days, this massing of individual strength has been in 
one way rendered less necessary by the use of machines, for 
they of themselves are equivalent to the resultant of hundreds 
and thousands of arms ; but, on the other hand, by making possi- 
ble the creation of large works, they have caused association to be 

145 



146 PRINCIPLES OF POLITICAL ECONOMY. 

Still more indispensable. Moreover, even at the present time, 
there are many labors which can only be executed by a joint body 
of workers, — from the fishing-smack, which requires a crew of at 
least two or three men, up to the canals of Suez and Panama, 
which set in motion whole armies of laborers. 

Again, in modern societies association is imperative in conse- 
quence of the manner in which the elements of production are 
distributed amongst men. We know that the requirements for 
every productive enterprise are a certain extent of ground, some 
capital, and, above all, some labor. Now these several elements 
are rarely united in the same person. I mean to say that it is not 
usual for one and the same man to be able to supply at the same 
time the personal labor, the land, and the capital that are necessary 
for production. This, indeed, may occur in small industries ; for 
instance, the peasant may cultivate his own fi.eld solely by the use 
of his arms and little savings, and the same applies to the artisan 
and small shopkeeper who earn their living entirely from their 
own resources, but the usual run of matters is far different. 

Our modern societies are divided into two classes : into those 
who possess the instruments of production in the shape of land or 
capital, and those who have nothing but their arms ; that is to 
say, their labor. As neither one class nor the other is capable 
of producing aught separately, — for labor without instruments and 
instruments without labor are equally useless, — there necessarily 
arises an association between landowners and capitalists on the 
one side, and laboi^ers on the other side. But at one time and 
another this association between landowners or proprietors in gen- 
eral and men of the people has taken very different forms, and 
the development of these successive forms is one of the fields 
best suited to the exercise of the historical method. 

In its beginnings, this association was compulsory and forced, 
and was called slavery. All productive labors were carried out by 
men of alien race and vanquished peoples, who were grouped 
under the absolute sway of a master, and were kept by him on 
his estates or in his house. 



PRODUCTION. 147 

The coercive nature of this first method of productive co-opera- 
tion was gradually softened down by the transformation of slavery 
into the Roman colonicE, or into serfdom, and has almost disap- 
peared under the present wages-system, which groups together in 
huge factories hundreds and thousands of men who are under the 
authority of a master. But they are free men, free to come and 
free to go. Yet in spite of this freedom, which, by the way, 
exists in theory rather than in practice, this mode of association is 
far from being a perfect association or partnership. Neither in 
legal phraseology nor in popular speech is the term "partnership" 
applied to this form of association, and our use of the word may 
astonish the reader. Here, indeed, we have a partnership in fact, 
but not in law, which is for production and not for distribution. 
The workmen do not in the least feel that they are their master's 
partners ; and, as we shall see later on, that is one of the vices of 
the wages-system. 

In politics evolution appears to have passed through the suc- 
cessive phases of absolute monarchy, constitutional monarchy, and 
republic. The evolution of economics would seem to correspond, 
stage by stage, with the political evolution ; for its forms have been, 
first of all, a rule of coercion, then a system of masterdom ; then 
the same ein-ployer-regime, tempered, however, by profit-sharing 
and a certain scope allowed the workmen in the carrying on of the 
business, or at any rate, in the management of superannuation 
funds, etc., and finally the co-operative form. 

Now the coercive form of industrial enterprise in the past and 
the monarchical form which it still retains at the present day, 
may have been necessary for the proper discipline of labor and to 
compel men to co-operate in the work of production. But they, 
probably, will not be final, and just as the first gave way to the 
second, so will the latter in its turn be succeeded by a perfect form 
of association, which will be free and complete, extending to dis- 
tribution as well as to production, and in which every man will 
have the clear knowledge that he is sharer in a collective work, 
and the firm will to co-operate therein. For this reason we must 



148 PRINCIPLES OF POLITICAL ECONOMY. 

hold that social evolution in this matter is tending towards busi- 
nesses in which profit-sharing is practised, and, better still, to 
co-operative associations of production, though both these forms 
are still in a very minor position. Reference may be made to 
Hertzka, Die Gesetze der sozialen Entwickelung ; Lange, Arbeiter- 
Frage ; Metchnikoff, La Civilisation et les grandes fleuves his- 
toriques ; Secr^tan, Etudes sociales, and the author's paper on 
" L'Avenir de co-operation" in the Revue socialiste for June 15th, 
1888.-' But this view has been sharply attacked by most econo- 
mists of the classical school (Mill excepted), and even by some 
of the chief of the historical school ; eg. by M. Lujo Brentano. 

Let us leave this forecast of the future and survey of the past, 
and look to the present. In modern society production is organ- 
ized in the form of businesses (^ejitrepi^ises) ; that is to say, free 
groupings of a larger or smaller number of persons, one of whom, 
the maste?' or employej^ supplies the capital, the implements, and 
the land, whilst the others, the wage-receivers, contribute their 
labor. But whenever the business assumes considerable dimen- 
sions, — and that, we shall see, is the current tendency, — it fre- 
quently happens that one man alone cannot furnish capital which 
shall be both enough and in proportion to the number of laborers. 
In that case capitalists have to combine to get together the 
necessary amount of capital, and the business is turned into a 
joint-stock company, a plan which has found extraordinary favor 
of recent years and which is in process of supplanting the old 
form of business carried on by individual employers. The study 
of the other forms of companies, liability companies, and so forth, 
are matters of commercial law. 

The joint-stock company has the especial advantage of being 
exclusively an association of capital. Now capital, in striking 
contrast to the two other elements of production, land and labor, 

1 See also Professor Gide's paper, " De la Co-operation, et les transformations 
qu'elle est appelee k realiser dans I'ordre economique " (address given to Inter- 
national Co-operative Congress, Paris, September, 1889, and published in 
Revue Economique of same date). — J. B. 



PRODUCTION. 149 

is especially adapted for association, in consequence of certain 
characteristics which are peculiar to it ; namely, its divisibility 
and its mobility. 

To begin with : capital can be divided into fractions (or por- 
tions) to an indefinite extent ; hence each capitalist is able to 
limit his share in the company, and consequently, his risks, as far 
as he thinks proper. It is to this that joint-stock companies owe 
their success ; for as each share is for ^20, or often even less, 
capitalists may take as many as they wish, according to their 
respective fortunes and the degree of confidence they have in the 
enterprise. 

This divisibility of capital also permits of the starting of colossal 
and extremely hazardous enterprises, which would be impossible 
without its aid. No capitalist, however rich he might be, would 
have dared to supply the ;£8o,ooo,ooo sterling required for the 
piercing of the Isthmus of Panama, in consequence of the extreme 
risk ; but now that such risks have been divided ad infinitufn 
among the members of a company, they have ceased to frighten 
any one. 

Further, capital enjoys a wonderful facihty of transferability, 
which is daily increased by the development of credit institutions. 
In order that laborers or proprietors may be able to co-operate 
in any productive undertaking, that enterprise must be formed on 
the very spot and can only bring together people living in the 
same neighborhood. Labor is not easily moved ; land cannot be 
moved at all ; but capital has eagle's wings, and flies from the 
very ends of the earth to any place where there is a prospect of 
profit. 

But there are grave disadvantages in this form of association 
which prevent us from believing that it will preponderate in the 
future, as some economists predict, notably de Molinari in his 
B Evolution economique au XIX^ siecle. The very fact that it 
associates only capital, and does not combine persons, is a mark 
of its inferiority. The shareholders are not acquainted with one 
another, and frequently know nothing of the concern of which 



150 PRINCIPLES OF POLITICAL ECONOMY. 

they are supposed to be members, save its name, which they read 
on the stock which they keep docketed at their bank or locked 
up in their safe. There are two sets of persons in the joint-stock 
company : firstly, the shareholders, who are partners in the distri- 
bution, but not in production ; and secondly, the wage-receivers, 
who are united by the fact that they produce and labor in common, 
but who are not partners as regards distribution. The former 
share the produce of a business in which they do not work ; the 
latter work in a business the fruits of which they do not receive. 
Such a position is not at all conformable to true morality, and its 
equilibrium is distinctly unstable. 

II. The Advantages and Disadvantages of Large 

Production. 

In the mechanism of production, as we have just shown, there 
is a daily tendency for the collective to more and more supplant 
the individual form. In old days, the greater part of wealth was 
produced by individuals working apart, — artisans, as they were 
called. They were united, it is true, far more than they are -now- 
adays by the bonds of professional corporations. But these 
corporations possessed the characteristics of productive enter- 
prises not a whit more than do our present professional syndicates ; 
and each artisan worked at home, either alone or with a few 
apprentices. Now, however, the greater part of wealth is pro- 
duced by groups of men of various numbers, and often by actual 
industrial armies engaged in laboring collectively. (Ten to fifteen 
thousand workmen apiece are employed by the Anzin Mines 
Company, the Krupp Gun Foundry, and by the Creusot Iron 
Works. One great railway company, such as the Paris-Lyon- 
Mediteranee^ has as many as sixty thousand men.) This evolu- 
tion of small production towards large production is one of the 
characteristic features of the day, and is the principal argument 
relied on by the collectivist school in the statement of its posi- 
tion. According to this school, this evolution, which is constantly 



PRODUCTION. 151 

tending to swallow up individual in collective production, is des- 
tined to end in absorbing all individual enterprise in the most vast 
of all collective enterprises ; i.e. in that which is carried on by the 
State or Society. 

The accomplishment of this evolution must result not merely 
from some sort of fatality, but from some incontestable advantages 
from the point of view of production. What are these advan- 
tages ? First of all, collective production alone permits of certain 
undertakings, which, whether from their extent or by reason of the 
time they take, far exceed the limits of individual strength and 
individual existence. But even in those enterprises which would 
not actually overtax individual capacities, collective production 
possesses a marked superiority. 

When we group together all the factors of production, — viz. 
manual labor, capital, natural agents, and situation, — a certain 
economy is effected ; that is to say, the same quantity of wealth is 
produced at a smaller cost, or what comes to the same thing, more 
wealth is produced at the same cost. 

Firstly, economy in labor. This first advantage arises in par- 
ticular from the possibility of establishing an improved division of 
labor, as will be noted presently. But it also results from the mere 
grouping together of workers. Among small producers much 
time is lost. Each man's hours of work are often unfilled. Take 
a hundred business houses, each of which employs ten men. 
Suppose we merge them into one. It is clear that they will not 
be obliged to keep all their employes in order to do business at 
a figure equal to that of the hundred separate estabHshments. 
Obviously there will be no need for a hundred cashiers or a hun- 
dred book-keepers. As henceforward each employe will be able 
to work continuously, he will be able to do two or three times the 
amount of work, and consequently will stand for two or three men 
working on the old system. 

Secondly, economy in situation. To obtain a hundred times 
more room in a shop or a factory, it is not necessary to occupy a 
superficial area a hundred times as large, or to employ a hundred 



152 PRINCIPLES OF POLITICAL ECONOMY. 

times the amount of material in building the premises. The sim- 
plest calculation shows that when the volumes of two cubes are as 
I to 1000 their surfaces are as i to 100. Now, it is only these sur- 
faces that cost money. Putting aside all mathematical methods, 
every-day observation shows that the cost of a building or the 
rent of a house does not increase in proportion to the amount of 
room occupied. The smallest shop in Paris which only does ^4 
worth of business a day will pay a rent of from ;£^20o to ;£24o. 
But the rent of the Bon Marche, which sells ;^4000 worth of goods 
a day, and therefore does a thousand times more business, is not a 
thousand times larger, which would make ;2^200,ooo to ;2^240,ooo, 
but is only ;^ 16,000. — De Foville, Des May ens de transport. 

Thirdly^ economy in natural agents. A powerful steam-engine 
consumes, relatively speaking, far less coal than a weak one. The 
difference runs from as much again to ten times as much again. 
Electric lighting is more economical than lighting by gas when 
used for large areas, but it is ruinously dear on a small scale. 

Fourthly^ economy in capital. A large shop which does a hun- 
dred times more business than a small one is not obliged to keep 
in stock a hundred times the quantity of goods. It is enough for 
it to have ten times more, and to take in a fresh stock ten times a 
year. Thus a sinking of ten times the capital brings about a hun- 
dred times the business. Moreover, the consumer will be better 
suited ; for in consequence of this frequent stock-taking the goods 
will be newer and more fashionable. 

Further, wholesale purchasers obtain better bargains than small 
buyers. Thus the large shop or factory which takes in stock in 
great quantities effects, in this item too, a considerable saving on 
the capital it employs. Indeed, it has been calculated that, in 
consequence of the combination of all these causes, the general 
expenses of an ordinary novelty warehouse are 40 per cent, while 
those of a large establishment like the Bon Marche are only 14 
per cent. In other words, the very articles that can be sold at 
the Bon March6 for £^4 \is. cannot be sold for under ;^5 \2s. 
at a small shop (see De Foville) . 



PRODUCTION. 153 

Now, are there nothing but advantages in this evolution towards 
large production ? No one but the most sanguine of optimists could 
think so. Were this evolution brought about solely by the means 
of perfect association, by the progressive substitution of associated 
for isolated labor, we might perhaps be able to see in it nothing 
but advantages. Even then, however, if the result of the develop- 
ment of collective organization was to weaken and relax the stim- 
ulus of individual initiative and responsibility, like springs which 
rust for want of use, we might justly express some fear, or at any 
rate some regret. 

We have stronger reason for concern when we see this evolution 
taking the shape of large businesses under private employers or 
under joint-stock companies ; that is to say, the progressive sub- 
stitution of hired employment for independent labor. Were this 
movement to continue to advance at the rate it now does, we 
should have to look forward to the disappearance from the sphere 
of economy of all workers on their own account, — small artisans, 
small shopkeepers, small proprietors, — and should see them re- 
appear as wage-receiving laborers, clerks, and officials, working in 
the interests of other people or for shareholders. Neither from 
the economical nor from the moral point of view should we have 
reason to congratulate ourselves on such a change of position. 
That would be rather too high a price to pay for economy in gen- 
eral expenses. The collectivists hope that the State or district 
communities or parishes will gradually take the place of employers 
or shareholders, and that thus private businesses will be metamor- 
phosed into "public services." But a man gains very little (if at 
all) by being employed by the State or by his parish instead of by 
a private master, and our objection still holds good. Let us rather 
hope that these large businesses will one day be the property of 
the laborers, who will be enriched together, and will thus return to 
the position they held when small industry was in vogue ; i.e. they 
will be the owners of their implements of labor, and will produce 
on their own account. Perhaps, too, if electricity enables motor 
force to be conveyed and distributed house by house, small in- 



154 PRINCIPLES OF POLITICAL ECONOMY. 

dustry may be enabled to hold the field against large industry, and 
may possibly gain ground. 



III. Whether Large Production should be extended to 

Agriculture. 

Evolution towards large production is not equally manifested 
in all quarters. Though extremely marked in the carrying industry 
and in commerce, it is less prominent in manufacture; in France, 
especially, an important place is still held by small industry. In 
i860 Paris was calculated to contain sixty-two thousand artisans 
working at home, either alone or with an apprentice. In 1872 
the number had risen to a hundred thousand (see the discussion 
of this subject by the Societe d'Economie Politique of Paris, in 
Xht Journal des Economistes, November, 1884. 

In agriculture, indeed, the tendency to large production has 
scarcely become visible. Not in the slightest degree in France, 
or even in Europe, is small farming disappearing in favor of large 
farming. (According to the agricultural statistics of 1882 there 
were in France 5,672,007 plots under cultivation, giving an average 
of about twenty-two acres for each separate holding. In reality, 
for the largest number this average is far too high ; there are 
more than two millions which are of less than two and a half acres.) 
What is the reason for this ? 

The collectivists, who on this point are in agreement with some 
of the leaders of the classical school, hold that this state of things 
is an anomaly, a mere pause in evolution, which is due to the habit 
of following routine which is characteristic of agriculture. They 
adduce the example of the people of the United States, who apply 
themselves to agriculture on the largest scale, and ask, " Is it not 
to this that they owe that superiority which enables them to crush 
European agriculturists in our own markets?" Some of those 
American farms have more than thirty-five thousand acres of tilled 
ground, where everything is done by steam, and in which a hun- 
dred ploughs are seen to start in the morning, and not reach, till 
evening, the end of their single furrow ! 



PRODUCTION. 155 

Does not, then, large production in agriculture present the same 
advantages as in manufacture ; viz., economy of general expenses ? 
Certainly it does ; though here the savings are of smaller amount. 

There is economy of situation and of buildings ; for on a large 
estate less ground will be lost in ditches, fences, and turnings of 
the plough, and less space wasted in cellars, barns, and stables 
than would be the case in a small holding. 

There is also economy in labor ; for though division of labor is 
far more difficult to effect on a farm than in a workshop, still it can 
be applied in a certain measure, and the employment of animals 
and of machines permits of a large reduction of manual labor. 

Above all, there is economy in capital. It is clear that a holding 
of a thousand acres will not require as many oxen, horses, ploughs, 
carts, and agricultural implements of all sorts, as ten farms of a 
hundred acres apiece. 

Yet, in spite of all these advantages, large farming possesses a 
vice which in some degree sets them off. In proportion to the 
surface cultivated, it obtains from the soil a far smaller quantity of 
wealth than does small farming. Its net produce may be larger, 
i.e. the proprietor may gain more profits, but the gross produce is 
far inferior. Now, taking into consideration the increasing density 
of population in all civilized societies, the future belongs to that 
mode of farming which can extract from the soil the largest 
quantity of nutritious material. 

In his now old but not old-fashioned Traite des systemes de 
ctdture^ M. Hippolyte Passy recognizes the superiority of small 
farming, both as regards the gross and the net produce. What 
generally makes people incHned to believe in the superiority of 
large farming is the intellectual superiority which our large farmers 
possess over small peasants ; we see that large holdings are better 
kept, and always lead the way in agricultural improvements, and 
we are thus induced to attribute to the difference in the mode of 
cultivation what really arises from the difference between the men 
themselves. 

On this point the example of the United States proves nothing ; 



156 PRINCIPLES OF POLITICAL ECONOMY. 

for, though those enormous farms in the New World have their 
advantage of producing corn at very Httle cost, on the other hand, 
the quantity they grow is very small. The yield does not exceed 
twelve to thirteen bushels per acre, which is inferior to that of the 
most ordinary land in France. In France, indeed, the average yield 
per acre is seventeen bushels ; in Holland, Belgium, and England it 
varies from twenty-six to thirty-three. This extensive cultivation 
may be permissible in the United States, where there is still plenty 
of land and the population is relatively scarce, but when men 
attain such proportionate numbers there as they do here, the 
methods of large farming will have to be abandoned, and labor 
and capital will be concentrated on smaller and smaller areas in 
order to increase the yield. Even now, from one census to 
another, we see that this reduction is being effected in the size of 
agricultural holdings. When the United States are as thickly 
peopled as China, if they are destined ever to become so, and two 
or three acres of land will have to do for the support of each 
family, agriculture, as is now the case in China, will take the shape 
of kitchen-gardening; i.e. all its power will be concentrated on 
holdings which will be no larger than small gardens. 

We beUeve, then, that the agriculture of the future will be small, 
far rather than large, farming ; and here we find the verification 
and the explanation of the law we mentioned above when speak- 
ing of the " ground." We refer to the progressive reduction of the 
cultivated area in proportion as a people passes through the suc- 
cessive phases of hunting, pastoral, and agricultural life ; and 
during the agricultural period as the race passes from extensive 
to intensive cultivation, and thence to kitchen-gardening, such as 
is practised to-day in places where population is thickest ; i.e. in 
the precincts of large towns. Round Paris kitchen-gardening 
may give as much as ^400 worth of gross produce per acre ; 
i.e. as much as will support about twenty people ; but naturally 
the extent of the holding is in inverse proportion to the im- 
portance of the yield : a man must start rich to be able to culti- 
vate one acre on these conditions. 



PRODUCTION. 157 

General Tcheng-ki-Tong, in the Revue de la Reforme sociale^ 
October 15th, 1886, says that "in China landed estates are not 
extensive ; those of four or five acres are considerable, for two or 
three acres will provide for a family of twenty people." 

Besides, small holdings are by no means incompatible with 
association or even with the methods of large farming, if by that 
term we are to understand the concentration of the largest pos- 
sible amount of capital and of labor on a given point. We must 
imagine that in the future these small proprietors will join together 
to introduce on their land all the improvements of agriculture, to 
buy or hire in common machines and stud animals, to have their 
produce carried in common by portable railways like the Decau- 
ville Railway, to buy wholesale manures, seeds, and plants, and 
also to sell their goods collectively. Such, even now, are the 
methods employed by ''agricultural syndicates," which are greatly 
developing in France. Yet we must admit that association between 
landowners presents almost insurmountable difficulties when it is 
no longer restricted to the transaction of a little business together, 
but is extended to cultivating their lands in common. For such 
an association to succeed, the estates over which it is to act should 
be contiguous j but for landowners to be near neighbors leads to 
the law courts rather than to genuine pursuit of the methods of 
association. 

The question of large and small farming is not necessarily 
bound up with that of large and small property ; for a large estate 
may be broken up into an indefinite number of small farms, as is 
the case in Ireland ; and, inversely, small proprietors might unite 
their land for the purpose of working it in common, as is done in 
some parts of Russia. Still, the two questions are connected, and 
usually speaking, small farming goes hand in hand with small 
property. When we deal with the distribution of wealth, we shall 
see that small property is tending to replace large property, and 
it will not be difficult to justify this evolution from the standpoint 
of social justice. Thus the two evolutions are advancing on par- 
allel lines and seem to strengthen one another. 



CHAPTER II. 
DIVISION OF LABOR. 

I. The Different Forms of Division of Labor. 

Association, of itself, means nothing more than the joining to- 
gether of individual strength, which is sometimes called " simple 
co-operation." Division of labor implies a certain distribution of 
labor among the associated persons so that each man executes but 
one operation ; this is termed " complex co-operation." 

If the work to be done is perfectly simple (such as digging up 
the earth, raising a weight, rowing, chopping wood), such labor 
does not lend itself to any sort of division ; each man will execute 
the same movements. But as soon as the acts involved in the 
work become complex and comprise various movements, it is 
altogether advantageous to break up that labor (which, considered 
as a whole, appeared as a single task) into as large a series of 
divided tasks as is convenient, and to assign one task to each 
man. 

The first form of division of labor is the separation of employ- 
ments, i.e. trades. When society is in the embryo, either as tribe or 
even as a patriarchal society, each man takes any work just as he 
pleases. But as soon as society becomes organized, there is a ten- 
dency for each man to devote himself to a fixed occupation, and the 
division of trades begins. Some prepare food, some clothing, others 
watch over the safety of all. Then in proportion to the improvement 
in organization, the specialization of functions grows out into num- 
berless branches. For instance, the industries of supplying food 
and clothing have each of them given birth to a hundred different 
trades, and these, in their turn, may be subdivided into distinct 
operations, each of which requires special workmen. The remark- 
158 



PRODUCTION. 1 59 

able articles by Professor Schmoller on " La Division du travail 
^tudi^e au point de vue historique," which appeared in the Revue 
d' Economie politique for 1889 and 1890/ give excellent accounts 
of the historical development of division of labor in the family, in 
industry, in agriculture, and in commerce. 

The second form of division of labor is that shown in the work- 
shop. This first drew Adam Smith's attention to this wonderful 
phenomenon and caused him to write those classical pages on the 
matter which have been quoted over and over again. (See the 
Wealth of Nations, NoX. I, Bk. i, Chap, i.) The example he chose 
is a little out of date, for nowadays most pins are made by ma- 
chinery.^ As we have already seen, all industrial labor is a simple 
series of movements, and this complex movement is split up into 
a series of as simple movements as possible, and each of these is 
confided to different sets of workmen ; thus each man (as far as 
is practicable) will execute but one movement, which will always 
be the same. 

A very vicious error in calculation would be made by thinking 
that division of labor can be effected by the employment of one 
single workman for each separate act; far more are generally 
needed. Say that the making of a needle comprises three differ- 
ent acts, — the making of the point, the head, and the eye. Let the 
point take ten seconds, the head twenty, and the piercing of the 
eye thirty. It is clear that to keep pace with the solitary maker 
of points, we require two workmen for the heads, and three for 
the eyes. Thus six, not three, workmen are needed, unless, 
indeed, the point-maker is to sit part of the day with his arms 
folded. This hypothesis could be easily complicated. 

^ Translated from the original German papers which appeared in Schmoller's 
Jahrbuchfur Gesetzgebung, Vol. XIII, Part III (1889), and Vol. XIV, Part I 
(1890). -J. B. 

2 Before the introduction of the Wright pin-machine in 1 824, the labor of 
fourteen persons was needed to make a pin. Nowadays, a needle requires 
immensely more labor in the proportion of about seventy to needles and three 
to pins. (Bevan's Industrial Classes, 1876.) — J. B. 



l60 PRINCIPLES OF POLITICAL ECONOMY. 

In the next chapter we shall see that there is a third form of 
division of labor that we might term international, which has only 
been recently developed under the improvements of communica- 
tions, and the growth of international trade, each people devoting 
themselves in particular to the production of articles which appear 
to be the best fitted to their soil, their cHmate, or the characteristic 
qualities of their race. 

The preliminary condition for the birth and growth of division 
of labor, under either of the above three forms, is production on a 
large scale. 

In fact, the greater number of divided tasks into which the 
labor can be split, the more perfect is the division of the labor, 
but the number of workmen will necessarily have to bear some 
relation to the number of these distinct acts. Now it is clear that 
the number of men a manufacturer can employ depends on the 
extent of his production ; but as we know that extent of produc- 
tion itself depends on the extent of the market, we may sum up 
thus : division of labor is in direct ratio to the extent of the 
market. 

It is this question as to the extent of the market, as has been 
frequently observed, which causes division of labor to exist only 
in large centres, and renders it unknown in country or village life. 
In a little place we find higgledy-piggledy in one shop, — groceries, 
pork-butcher's goods, children's toys, stationery, mercer's goods, 
ribbons, gloves, etc., which in a large town would give rise to 
as many different trades. The reason is plain. The villager is 
obliged to turn his hand to everything and be a jack-of-all- trades 
for the simple reason that no one trade would enable him to earn 
a living. 

A superficial look might make us think that the huge bazaars of 
great capitals, e.g. the Louvre or the Bon Marche, were in the 
same case ; for they sell all kinds of articles. In reality they ex- 
emplify the highest degree of division of labor ; for each sales- 
room has a separate trade with special assistants and heads, one 
dealing with lace, another with oriental carpets, etc. 



PRODUCTION. l6l 

Most books on political economy mention a second condition 
necessary for division of labor ; namely, a production which is 
continuous and not intermittent \ hence the conclusion is drawn 
that division of labor is not appHcable to agriculture. 

No doubt division of labor on a farm cannot be managed in the 
same manner as in a workshop. It is impossible to put one man 
to sow, another to reap, a third to gather in the grapes, or graft 
or train or plant the vine, because each of these operations — 
sowing, vintage or corn-harvest, grafting, pruning, planting — can 
only be effected at a fixed season, and for a limited number of 
days. If we devoted a man to each of these special kinds of work, 
he would have to be idle for eleven months out of the twelve. 
But it is possible, or at any rate would be desirable, to arrive at 
division of labor under another form, in which each man, or group 
of men, would apply themselves to the cultivation of a specific 
plant. No doubt this will be brought about in proportion as 
agriculture becomes more intensive and more akin to gardening. 

It was for this reason that Fourier put division of labor under 
agricultural association, and pushed the method to the farthest 
extent, organizing as many groups of laborers as there are species 
(men to grow the cabbage, the turnip, the pear, the cherry, etc.), 
and even sub-groups for the varieties of each species. 

II. The Advantages and the Disadvantages of Division 

of Labor. 

Division of labor increases the productive power of labor in 
proportions that surpass all imagination. The following are the 
reasons for these : — 

Firstly. As we have previously explained, the most complicated 
labor is broken up into a series of very simple and almost mechan- 
ical movements, which are very easy to execute and thus wonder- 
fully facilitate production. 

Indeed, such simple movements may be reached as to show us 
that man's intervention is no longer necessary to execute them, 



l62 PRINCIPLES OF POLITICAL ECONOMY. 

and that a machine will do as well. It is by this process of anal- 
ysis that we come to perform mechanically labors which at first 
sight appeared to be most comphcated. 

Secondly. As the tasks which are thus created are of various 
kinds, all of them differing in difficulty and in the strength and 
attention they require, we are enabled to fit each of them to the 
individual capacities of the workmen. Thus each man's natural 
aptitudes can be utilized, and we can escape that waste of time, 
of strength, and even of capital, which would result from setting at 
the same work all alike, weak or strong, ignorant or intelligent, — 
a squandering of the energy of the strongest or the most able on 
work which is too easy for them, or a waste of the labor of the 
weakest or the most ignorant on a task which is beyond their powers. 

Thirdly. The constant repetition of the same exercise gives 
men a really wonderful dexterity, just as in intellectual labors sus- 
tained and persevering application singularly develops the intel- 
lectual faculties, and thence productive power. Doctors, lawyers, 
painters, students, scientists, all have their specialties nowadays ; 
and each man finds it to his advantage to quarter himself in 
one little corner of human knowledge and diligently explore its 
resources. In the case of mental labor this tendency is not 
without serious disadvantages ; but in productive labor (properly 
so-called) this improvement in work, which is acquired by long 
custom, constitutes the principal advantage of division of labor. 

Three other less important reasons are usually assigned for the 
increase in productive power afforded by division of labor. 

Fou7'thly. The economy in time which results from the continu- 
ousness of the labor. A man who often changes his work will, at 
each change, lose not only the interval of time which must neces- 
sarily pass between two different acts, but, above all, the time 
required for setting to work. 

Fifthly. Economy in tools, which reaches the maximum when 
each laborer employs but one implement, and uses that constantly. 

Sixthly. The diminution in the period of apprenticeship, which 
is naturally longer in proportion to the complex nature of the trade. 



PRODUCTION. 163 

But against all these advantages, some serious drawbacks have 
long been obs^erved : — ^ 

Firstly. The degradation of the worker, who, by the repetition 
of one single movement, which is as simplified as possible, is 
reduced to play a purely mechanical part. On this topic, we may 
refer to Lemontey's classic pages and famous saying, *' It is a sad 
confession for a man to make that during his whole life he has 
constructed nothing more than the eighteenth part of a pin ! " 

The rejoinder is, that the use of machinery constantly tends to 
correct this evil effect of division of labor. Indeed, we may 
rest assured that as soon as any act has been so simplified as to 
become mechanical, it will not be long before the workman is 
replaced by a machine ; for in such a case, that is always found 
to be profitable. 

Another indispensable corrective of division of labor in modern 
industry is a limitation in the length of the day's work, which 
enables the workman to occupy his body and mind in a more 
normal manner. 

Fourier, the socialist, believed that, by the aid of what he calls 
short sittings, all the advantages of division of labor might be 
obtained, together with an avoidance of its disadvantages. Accord- 
ing to him, each laborer is to ply not one only but several trades, 
and to pass in turn from one to another. The advantages of 
specialization still remain ; for a man need not work at one thing 
his whole life so as to be able to do it well. He may become very 
skilful in five or six different operations, especially if they are 
simple ones, thanks to division of labor. On the other hand, the 
deadening monotony, caused by the same work always, is thus 
avoided. In this manner satisfaction is given to what Fourier 
very picturesquely calls the "butterfly" passion. This idea of 
Fourier's is by no means absurd, though it has been much ridi- 
culed j still, for its successful execution, the workman would need 
to be able to change his labor without losing too much time. 

1 Some of them by Adam Smith himself, (See Wealth of Nations^ Bk. V 
Chap. I, Article II. — J. B. 



l64 PRINCIPLES OF POLITICAL ECONOMY. 

Nothing but the phalanstery where all workers are assembled, and 
all kinds of work are done in the same place, would allow of this 
sort of rotation of labor, in which the blacksmith could leave his 
anvil to go and tend his roses. 

Secondly. The extreme dependence of the workman who is 
incapable of doing anything except the fixed and altogether special 
operation he has become accustomed to, and who consequently is 
helpless when out of work or turned off. Like the very parts he 
makes, which are worthless without the combination of them which 
turns them into a whole, he, too, may be said to be nothing more 
than a wheel in that great machine we call a manufacture ; beyond 
that, he is good for nothing. 

There is certainly some truth in this criticism. No doubt, given 
the present organization of industry with extreme specialization in 
purely mechanical acts, and some disadvantages may result from 
it, especially when we consider stoppage of work; but in a 
general way, it is not right to complain that each man is tending 
to become more and more dependent upon his fellows. The 
consequence of this reciprocal dependence, of this closer and 
closer union, which binds individuals together into a sort of sheaf, 
is not to diminish, but far rather to strengthen, individuality. As is 
well remarked by M. Espinas, in his Societes animales, " The apti- 
tude for isolation is but a very inferior characteristic of individuality. 
It is not a retrogression but a progression for the individual to 
become an organ relating to a more extensive whole, and to hold 
numerous relations with other foci of life and other individualities." 

Moreover, this is the result of a natural and absolutely general 
law. The more perfect an organization is, the more closely 
dependent is the individual on the other individuals with whom 
he is associated. In weakly constituted societies, in virtue of 
their imperfect organization, each individual keeps his own par- 
ticular worth, and may be separated from the society to which 
he belongs without great harm, either to himself or to it ; just 
as sponges, polyps, and even earthworms, may be divided into 
segments without much disadvantage, the severed piece being self- 



PRODUCTION. 165 

sufficient. But, in an organized society where division of labor 
is firmly established, man becomes so dependent upon his fellows 
that if he is separated from them, it is impossible for him to live ; 
just as in highly organized beings a member detached from the 
body dies at once, and in some cases, draws along with it the 
death of the body to which it belongs. It is the old fable of 
Menenius Agrippa, — the fable of the belly and the members, — 
though, indeed, he knew nothing of sociology or biology. " Let 
a division be made between the coal-mining populations and adja- 
cent populations which smelt metals or make broadcloth by ma- 
chinery, and both, forthwith dying socially by arrest of their actions, 
would begin to die individually." — Herbert Spencer, Principles 
of Sociology (3d ed.), Vol. I, page 506. 

Every time, then, that people complain of division of labor, — 
that it kills individuality by reducing the laborer to the position of 
a mere accessory, and placing him in a state of absolute depend- 
ence, — we must answer that it is only a small evil in exchange for 
a great good, the wider and wider development of social solidarity. 

As Professor Schmoller says, in the articles referred to above, in 
the Revue d' Economic politique for 1890 : "Those who give vent 
to the above criticisms are mistaken, both historically and practi- 
cally, if they imagine that, before the inception of division of 
labor, man was nearer to the ideal of human individuality and 
was more harmoniously developed. Without division of labor he 
would be merely a barbarian, who eats, drinks, and lives in idleness. 
Through it alone has high culture been rendered possible, in in- 
tellectual matters, in morals, in aesthetics, and in economics. First 
of all, this fell only to the lot of a few, but it is gradually extend- 
ing to a larger number of individuals. We shall not make man 
perfect by endeavoring to harmoniously develop all his powers ; 
that would be to ask for what is impossible. Man's weakness and 
the short duration of his life prevent him achieving anything 
more or anything nobler than this : — he must devote himself to a 
special vocation, but at the same time must regard with an open 
mind all that is best and greatest in other spheres of activity." 



l66 PRINCIPLES OF POLITICAL ECONOMY. 

III. Liberty of Labor. 

By what mysterious law is this division of labor established in a 
human society? It is not enough to say that it arises spontane- 
ously in consequence of a fate-determined evolution like that 
which forms and distributes the organs of the human body ; for 
then we should have to inquire how men, who are free agents, are 
thus distributed between the various trades, so that each occupa- 
tion has its due proportion of hands and no more. 

Division of labor in the workshop presents no difficulty, for it is 
the manager or the master himself who assigns their respective 
tasks to his men ; but when we come to division of labor in 
society, the separation of trades and professions, we ask. What is 
the power that there assigns his work to each person? 

It is the law of value, or the law of supply and demand. If 
men flock too freely into any trade or profession, their labor or 
their services become depreciated in consequence of their super- 
abundance, and they are not long in retiring from, or, at any rate, 
in dissuading their children from entering upon, a career which is 
no longer remunerative. If, on the other hand, any trade or pro- 
fession is not completely filled, those who are engaged in it find 
their labor or services greatly enhanced in value in consequence 
of their scarcity ; and this premium on wages or profits soon 
attracts many competitors into the calling. 

It is the working of free competition, then, or, in other words, 
each man's liberty to choose the kind of labor he thinks most 
advantageous, which maintains in some sort of equilibrium the 
necessary proportions between the various professions and trades. 

As is well known, liberty of labor ranks among the conquests of 
the Revolution of 1789, and has since then gradually spread over 
the whole Continent. Under the ancien regime labor was subject 
to a system of regulation which was both highly protective and 
extremely vexatious (the two things generally go hand in hand), 
and which was carried out by the statutes of the corporations 
themselves as much as by the petty interference of the govern- 



PRODUCTION. 167 

ment. This system, which was first suppressed by Turgot, was 
definitely abolished by the celebrated law of March 17, 1791. 

Yet it canhot be asserted that the distribution of labor in our 
modern societies, such as it results from liberty of labor, is any- 
thing to boast of, and we are unable to share the complacent admi- 
ration expressed on this subject by too many economists. Indeed, 
when we look at the matter, free from all preconceived ideas, we 
are astounded at the really extraordinary development of parasitic 
or even harmful industries, such as the liquor-sellers, who are 
almost as numerous as the effective staff of the French army. 
The number of licensed liquor-sellers in France is 422,303. This, 
of course, includes hotel and restaurant proprietors ; but the public- 
houses proper are, none the less, terribly numerous in large towns. 
In the Department of the Nord, one drink-shop is reckoned for 
forty-six people ; and, as out of these forty-six inhabitants three- 
quarters are women and children, that leaves one pubhc-house 
for every twelve men ! 

Even when we come to useful industries, we find that some 
are much undermanned, — for example, country doctors, — whilst 
others are enormously over-crowded, such as the grocers and 
bakers who swarm in our towns to their own ruin and to that 
of the consumer as well. Here are the figures of some of these 
inequalities. In all France there are 14,668 doctors or health- 
officers. This number (i to every 2000 persons) would be enough 
if they were well distributed ; but they are almost all in the towns, 
leaving only 3000 or 4000 for a rural population of 20,000,000 ; 
i.e. I for 6000 or 7000 persons, and very scattered, too. Of 
grocers, on the other hand, there are 106,101, or i for 90 fami- 
lies. There are 52,957 bakers, and almost as many butchers; 
or I for 180 families. Of course, in the towns the proportion is 
far higher. 

In fact, the personal motives which incite workers to enter on 
such and such a calling are far from being synonymous with the 
interests of society. The remuneration allowed by the law of 
supply and demand to any labor or service is certainly in propor- 



l68 PRINCIPLES OF POLITICAL ECONOMY. 

tion to the utility of that labor or service ; but we know that this 
utiHty has no rational or moral value, and does nothing more than 
respond to men's desires or men's frailties. 

In spite of the shortcomings of liberty of labor and competition 
as regulators of social production, we cannot easily think of any- 
thing which could take their place, except compulsion, which would 
be worse. The collectivist and communist systems, it is true, im- 
agine that they can be advantageously replaced by commission^ 
ing the social power with the duty of apportioning the number o{ 
laborers required for each office, a task which would be facilitated 
by the use of greatly improved statistics. Thus division of labor in 
society would be established in the same way as it is in the work- 
shop. I.e. by regulation. It is not altogether obvious in what man- 
ner the mechanism of production could gain by this, whilst it is 
perfectly clear how much each one of us would lose in respect of 
liberty. Still, in the Revue socialiste of April, 1888, an attempt 
was made by M. Tufferd, in an article on " La Repartition du 
travail dans la societe future," to effect this distribution of labor 
without wounding individual liberty. But the author has to 
have recourse to the law of supply and demand, which, indeed, 
is unavoidable.^ 

1 A thorough discussion of the subject will be found in Professor Marshall's 
Principles 0/ Economics (1890), Bk. VII, Chaps. IV and V. — J. B, 



CHAPTER III. 
EXCHANGE. 

I. On the Part played in Production by Exchange. 

Exchange fills a huge place in social life. 

Sufficient proof of that rests in the fact that nearly the whole of 
the wealth which is produced is only produced for the purpose of 
being exchanged. Take the corn in the granaries, the wine in the 
cellars of land proprietors, the clothing in the tailoring-rooms, the 
shoes at the bootmaker's, the jewels at the goldsmith's, the bread 
at the baker's — and ask. What part of all this wealth is destined 
by the producer for his own consumption ? Very little or none at 
all. It is orAj merchandise, or, as the name tells, objects intended 
for sale. Our industry, our skill, our talents, are also more often 
than not applied to satisfy the wants of others, and not our own 
needs. How often does it happen that the barrister, the doctor, 
and the solicitor have to work on their own account, plead their 
own cases, attend to their own ailments, draw up their own deeds ? 
They, too, regard these services only from the point of view of 
exchange. This is so true that when we come to estimate our 
wealth, we weigh it not according to the greater or less amount 
of satisfaction it has afforded us, but purely according to its value ; 
in other words, according to its power of exchange. 

A family of peasants living on their own land and burdened 
with fev/ wants might at a pinch be able to consume nothing but 
what they produce, and only produce what they will be obliged to 
consume ; but for this to be effectual the family would have to live 
almost in the savage state, and I do not believe that any civilized 
society could offer a solitary instance of such an occurrence. 

This state of affairs, in which exchange reigns supreme, is due 

169 



I/O PRINCIPLES OF POLITICAL ECONOMY. 

to division of labor as described in the last chapter. For how 
could a man settle down in one occupation, e.g. devote his life to 
the manufacture of nails or the making of cheese, unless he could 
reckon on others making bread for themselves and for him, and 
on his thus being able to obtain by exchange everything he does 
not produce himself? 

We must admit, however, that some socialist schools propose a 
reconstruction of society in which exchange will be suppressed 
without any modification in division of labor. They propose to 
solve the problem by a resort to communism. In the bosom of a 
family, or even in the heart of a tribe, there is some division of 
labor, although of a rudimentary kind ; but there is no exchange 
between the members of that family. Each member pours into 
the common fund the product of his own labor, and takes from 
that fund products which he makes use of for his own personal 
consumption. Is it not possible to conceive the extension of this 
system to an entire country ? No ; for real community can only 
exist between people living together, say in the same commune 
or parish ; now, as it would be absurd to think that each parish in 
a civilized country can produce all it consumes, and only con- 
sumes what it produces, exchange relations would be necessitated 
between the different parishes. And if, as an absurd hypothesis, 
real communism were extended over the length and breadth of a 
country, exchange between different countries would come into 
play. All, then, that communism can do is to replace exchange 
between individuals by exchange between collective bodies. 

Whether exchange should be considered to be productive of 
wealth is an old question of debate among economists. The 
Physiocrats used to answer it in the negative. When we look at 
the fact of exchange separately, and reduced to its legal basis, as a 
simple transfer of property, as a quid pro quo : we certainly cannot 
term it an act of production ; for it follows from its very definition 
that its function is not to produce new wealth, but to transfer 
already existing wealth. Clearly, the sale of a piece of land can- 
not be called an act of production. Moreover, as sale and pur- 



PRODUCTION. 171 

chase are the two faces of exchange, if to sell is to produce, so 
likewise is to buy ; and we should all of us be producing every 
time we make' a purchase. That would be a confusion of language. 

But we must not look at exchange in this light. We must 
regard it as the last in that series of acts of production which 
begins with invention, also a non-material act, and continues 
through the whole series of agricultural, manufacturing, and trans- 
porting industries, forwarding products, stage by stage, towards 
their final destination, the hands of the person who is to use them.^ 
Change of form, of place, and -of ownership are all three equally 
indispensable for the final result ; and surely the last named is not 
the least important. 

Yet the Physiocrats attempted to show that exchange was profit- 
able to no one. For, said they, all exchange, if it is equitable, 
presupposes the equivalence of the two values exchanged, and con- 
sequently implies that there is neither gain nor loss on either side. 
It is true that one party may be cheated ; but in that case, one 
man's profit is easily balanced by the other's loss, so that altogether 
the final result is nought (see Quesnay, Dialogues sur le Com- 
merce, and Le Trosne, De V Interet social) . This is nothing but 
sophistry, and was refuted by Condillac long ago. We need only 
remark that, if no exchange ever led to profit, or if every exchange 
necessarily implies fraud, it would be difficult to understand why 
men have persisted in practising exchange for so many centuries. 
As a matter of fact, the values exchanged are not equivalent. 
What I yield in the process of exchange is always worth less to me 
than what I acquire ; for clearly without that motive I should not 
surrender it at all, and my fellow-exchanger goes through the same 
train of reasoning for his part. Each of us considers that he 
receives from the exchange more than he gives, and we are both 
of us correct. There is no contradiction between these opposite 
judgments and conflicting preferences, for we know that the utility 

1 Consumption is the raison d^eire of all goods, and not merely of the food, 
of which Hegel said once at a dinner : *' Bring it, that zue may fulfil its destiny " 
(Zz/^, p. 217). — J. B. 



1/2 PRINCIPLES OF POLITICAL ECONOMY. 

of each thing is purely subjective, and varies according to the 
wants and desires of each individual. 



II. The Advantages of Exchange. 

The advantages of exchange may be grouped under the two 
following heads : — 

Firstly. Exchange enables us to utilize for the best a large 
quantity of wealth which without it would have remained unused. 
Without exchange what would England do with her coal, California 
with her gold, Peru with her guano, Brazil with her "bark"? 
When analyzing the nature of wealth, we found that an indis- 
pensable condition for any object ranking as wealth was its capa- 
bility of being utilized. For this to be effected, exchange must 
convey the article to the person who is to use it, — the quinine to 
the fever patient, guano to the farmer, coal to the manufacturer, 
etc. Suppose that to-morrow a decree be issued, suppressing 
exchange everywhere, in consequence of which every man and 
every nation will be obhged to keep on their own land or terri- 
tory and for their own use all the wealth they possess. Just 
imagine what an enormous mass of wealth would at that single 
stroke be condemned to uselessness, and be good only for rotting 
where it stood ! Not only must we say that without exchange the 
greater part of wealth would be unused, but, we must add, it 
would never have been produced at all. 

Secondly. Exchange in particular enables us to utilize for the 
best a host of productive capacities which without it would have 
lain idle. Observe, in fact, that were there no exchange, each 
man would have to apply himself to the production of all that is 
necessary to supply his wants ; and supposing they were ten in 
number, he would have to ply ten different trades : whether he did 
them well or ill would be of no consequence. He would be 
obliged to regulate his production not according to his aptitudes^ 
but according to his wants. The introduction of exchange com- 
pletely changed all this. Henceforward, as each man was sure of 



i'RODtJCTION. Ij^3 

obtaining by exchange all that he required, he could devote him- 
self to the occupation he could do the best, and could regulate his 
production not accoi^ding to his wants, but according to his apti- 
tudes or his means. Before the establishment of exchange, each 
dweller in the world had to produce what he most needed. Since 
the institution of exchange, he has only had to produce what he 
can do the most easily. Of a truth, a great and wonderful sim- 
plification ! 

It may be said that this advantage greatly resembles those 
afforded by division of labor ; in fact, it is the same advantage, 
but hugely increased and multipHed. It would be more correct 
to say that it is to exchange we owe division of labor with all 
its tributary advantages ; through exchange division of labor is 
enabled to overstep the narrow circle of the workshop, or the 
family community, and to spread out over the whole surface of a 
large country, and even to the ends of the earth. Were there no 
exchange, association and division of labor would demand a pre- 
arranged concert between the fellow-workers ; a mutual under- 
standing would be necessary for their union in a common work. 
But exchange dispenses with the necessity for this prior agree- 
ment ; each man, henceforth, from far or near, can produce 
according to his natural or acquired aptitudes, and according to 
the natural products of the land he lives in ; he can devote him- 
self entirely to one kind of labor, and can always keep throwing 
the same product upon the market, resting sure that by the aid of 
the ingenious mechanism presently to be investigated, he will be 
able to receive in the exchange the objects he may desire. It 
has often been remarked that the daily consumption of each one of 
us is the combined result of the toil of hundreds, or perhaps thou- 
sands, of laborers, who are united by the bonds of an association 
which, though perhaps unperceived, none the less exists. Adam 
Smith gave excellent instances of this {^Wealth of Nations), which 
have been reproduced in various forms. For example, M. de 
Laveleye, in his Elhnents d^economie politique, says : '' The poorest 
workman consumes the products of the two worlds. The wool for 



1/4 PRINCIPLES OF POLITICAL ECONOMY. 

his clothes comes from AustraHa, the rice in his soup from India, 
the corn in his bread from Ilhnois, the petroleum for his lamp 
from Pennsylvania, his coffee from Java." 

Thus it is that in any country, and even in the whole world, the 
best possible use is made of all the labor, all the capital, all the 
natural agents that are available, that the right man is put in 
the right place, and that each man and each people exercise to 
the full both their skill and their productive power. 

III. On the Means of facilitating Exchange. 

Exchange would be very difficult, nay, almost impossible, had 
not ingenious means been contrived for simplifying and facilitat- 
ing it. They may be classified as follows : — 

Firstly, the institution of a class of middlei7ien, called traders or 
busifiess men, and various other methods for putting into commu- 
nication producers and consumers. 

Secondly, the creation and improvement of means of transport 
for the easier removal of commodities from place to place. 

Thirdly, the invention of a commodity meant to act as a common 
third under the name of money, to break up barter into sale and 
purchase. We will investigate these in turn. 

IV. On the Part played in Production by Traders. 

It would be a mistake to think that trade began between neigh- 
bors, and thence gradually spread farther afield. The members 
of one and the same tribe are too much akin in their habits and 
their wants, and division of labor is too fully developed, for any 
regular movement of trade to arise. Thus trade was first set 
on foot between distant peoples inhabiting countries of diverse 
natures ; in a word, there was international trade before there was 
home trade. Hence the earliest traders were travellers or adven- 
turers, such as we read of in Marco Polo's travels, and in the 
equally characteristic though imaginary journeys of Sinbad the 
Sailor, in the Thousand and One Nights. 



PRODUCTION. 175 

Now as trade was only carried on between strangers, or, as for 
the ancients ]the terms were synonymous, between enemies, its first 
beginnings were attended by fraud, stratagem, and frequently by 
violence ; and the public conscience was not disquieted by the 
circumstance that Mercury was, at one and the same time, the 
god of traders and of thieves. 

It therefore follows that from the first, traders were persons of 
note, who were envied and feared — and, ranking far above the 
artisan and agricultural classes, were, in fact, a true aristocracy. 
It was only at a comparatively recent date that small retail trade 
began to make its appearance. This evolution of the trader class 
may be studied in Professor Schmoller's article, which we have 
quoted above. 

Two phases may be noted in the history of traders. 

Firstly. First of all there is the travelling trader. He still exists 
in all countries where trade is not yet highly developed ; trade is 
there carried on by means of caravans. Survivals of this are the 
pedlar to be seen in our villages, and the hawkers with their cries, 
who make the streets of Paris resound with their varied melodies. 

But this system of the trader travelhng with his goods is very 
imperfect, for it can scarcely be applied except to articles of 
luxury or of easy transport, and is exceedingly burdensome, for 
each commodity is charged with enormous general expenses. 
The profits of the traders who take caravans through Central 
Africa must be at least 400 per cent to yield any remuneration 
at all. 

Secondly. Thus whenever commerce has attained any robustness 
of development, the travelling trader soon gives place to the sed- 
entary trader, that is to say, the shopkeeper. Before, it was the 
trader who went forth to seek for his customer ; henceforward, 
the customer has to come and find the trader. It is necessary 
then for the trader to attract the attention of the passer-by either 
by sign-boards, which still survive in the barber's pole, which is 
suspended from hair-dressers' doors, or the Highlander or the 
Turk's head before tobacconists', or by the display of the goods 



1/6 PRINCIPLES OF POLITICAL ECONOMY. 

themselves in dazzling shop-fronts ; again he may have to attract 
his customer from afar, either by advertisements, puffs, and cata- 
logues, or by commercial travellers, more elegantly called nowa- 
days " representatives of commerce," who resemble the travelling 
traders of the past, but differ from them in only carrying samples 
of their goods. 

The following are the advantages that society derives from the 
existence of traders : — 

Firstly. They serve as middlemen between the producer and 
the consumer, and save each of them the time he would have to 
waste in seeking for the other. 

Secondly. They take goods wholesale from the producer, and by 
selling them retail obviate the embarrassments which would inevi- 
tably arise from an absence of coincidence between the quantity 
offered by the producer and that demanded by the consumer. 

Thirdly. They keep the articles in stock, and thus prevent the 
difficulties which might result from the absence of another coinci- 
dence, — namely, between the time at which the producer wishes to 
dispose of his product and the time when the consumer is desirous 
of acquiring it. These, no doubt, are weighty services, but, as we 
shall see, rather too high a price is paid for them. 

V. The Disadvantages of the Multiplication of Traders. 

In consequence of various causes, among the chief of which 
must be placed the easy labor involved in the profession of trader, 
and the attraction it has for many people, especially in France, 
the number of these middlemen, and of retail tradesmen in par- 
ticular, has become altogether disproportionate to men's wants. 
This is seen in the figures given a few pages back (page 167). 
About one-tenth of the population of France is employed in trade 
in various ways : such a proportion is altogether excessive. It is 
a terrible waste to maintain one middleman for every ten persons. 
This multiplication of middlemen, by reducing each man's sale, 
has burdened each article with relatively enormous general ex- 



PRODUCTION. 177 

penses, and has kept prices up at an altogether factitious height. 
Vainly do improvements in machinery, or the development of 
international 'trade, lower little by little the cost price of a host 
of products ; the consumer pays not a stiver the less for them. 
The retail prices remain almost the same, when they do not rise, 
and the public does not benefit by the progress in industry. The 
difference goes into the hands of the middlemen, though they for 
the most part do not gain much thereby, for the profits are con- 
sumed by the general expenses. This is a striking example of 
those cases previously referred to, in which compedtion causes 
dearness instead of cheapness. It is in this direction that we 
must seek for the explanation of that constant increase in the cost 
of living which is so justly complained of by the public. 

The prices of corn and of meat in France have been continually 
falling for several years past ; of this the competition of countries 
beyond the sea is the cause, and the lamentations of landowners 
are the proof. But the price of bread at the baker's and of 
meat at the butcher's has only fallen in an exceedingly small 
degree, or has not fallen at all, in consequence of this multiplica- 
tion of middlemen. Thirty years ago, Paris, it was reckoned, 
had one baker for every eighteen hundred inhabitants ; now it has 
one for every thirteen hundred : in other words, each baker sells 
a third less bread, and, to compensate for this, has to make more 
profit on each loaf. This is why he sells at eight pence a quartern 
loaf which is worth scarcely more than five pence a quartern. 

It is not uncommon for a tradesman to levy on a piece of cloth 
sold by him a profit higher than the wages obtained by the work- 
man who made it ; in other words, the labor of cutting off a piece 
of cloth and handing it over to a customer is better paid than the 
labor required for making it entirely from hem to hem. 

We should be astonished if we reckoned up the total tribute 
levied upon the pubHc by middlemen. According to an inquiry 
instituted by the Orleans Railway Company in 1866 on the goods 
they supplied to their employes, the difference between the cost 
and the selling prices varied between 30 and 127 per cent. If we 



178 PRINCIPLES OF POLITICAL ECONOMY. 

take this minimum figure of 30 per cent, which is certainly less 
than the reaUty, and apply it to the total consumption of France, 
which is under ^^ 1,000,000,000 sterling, we see that the toll 
levied by the middlemen would amount to ;£'30o,ooo,ooo, or more 
than double what we pay in the shape of taxation. SociaHsts and 
economists alike are unanimous in denouncing this vice of our social 
organization. (See Fourier and Paul Leroy-BeauUeu, passim^ 

If we add to this serious disadvantage the adulteration of goods 
which is becoming an actual peril to the public health, and is 
equally an effect of the bitter competition of traders, we are led 
to ask ourselves whether the services rendered by these middle- 
men are not now too dearly paid for, and whether we cannot find 
some other mode of organizing exchange which would be less 
burdensome for society. 

The true remedy would clearly be to put producer and con- 
sumer in direct intercommunication by suppressing the middle- 
men, or at any rate by reducing their numbers to the minimum. 

Long ago, certainly before ever the class of traders was formed, 
producers and consumers had found the means of meeting to- 
gether at the markets and fairs which were formerly of such 
moment, and are still not without some importance in the heart 
of rural districts. But we can never dream of returning to such a 
machinery of exchange ; for it would be more onerous than the 
employment of traders, on account of the loss of time and heavy 
cost of carriage ; and its use is justly becoming more and more 
discontinued. The famous fair of Beaucaire is now nothing more 
than a huge local market ; but fairs still hold an important place 
in those countries in which improvements in exchange have not 
yet been introduced. In the far east of Europe the fair of Nijni- 
Novgorod does business to the figure of ^8,000,000 sterling,^ 
and brings together 200,000 persons from the ends of the Old 
Continent. 

1 The amount is sometimes said to have diminished since 1851. But Pro- 
fessor Zehden, in his Handelsgeographie (5th ed., 1886), makes the figure 
;!^33,o.oo,ooo and the persons 300,000. — J. B. 



PRODUCTION. 179 

The greatest difficulty to be met with in placing producer and 
consumer in ,direct communication is that the producer can scarcely 
sell retail, whilst the consumer can still less buy wholesale. But 
this difficulty can now be successfully overcome by association 
under a double form ; either the association of producers who 
unite together to sell to the public directly, e.g. "agricultural syndi- 
cates" (see above, page 157) ; or the association of consumers who 
unite to purchase directly from the producers ; that is the part 
of co-operative societies of consumption (see below, " Institutions 
for the facilitation of Saving"). Both kinds of societies, which, 
moreover, could mutually aid one another, are called upon to 
render the pubKc a notable service by completely reforming our 
commercial organization. 

In fine, there is reason to think that the mechanism of trade, 
after having rendered great services to society, has now passed 
its limit in most civilized countries. To use a current expression, 
it must be regarded as an historical category which has had its 
day, and which it is the duty of economic evolution to successfully 
eliminate. 

VI. Means of Transport. 

It is easy to conceive of exchange without any change of place 
of matter ; for example, when it is applied to immovable things ; 
or, better still, when it is busied with pure speculation on com- 
modities. Nevertheless, change of place may be regarded as an 
essential feature of that particular form of exchange to which both 
practice and legal phraseology confine the name of "trade." Now 
the act of effecting a change of place, i.e. transport, requires much 
labor, and consequently great expense. Every invention, whose 
result is to facilitate the means of transport, at one and the same 
time aids exchange ; hence the history of trade is in a measure 
identical with the development of communication by sea and by 
land. 

The difficulties of transport are of various natures, and may 
arise from several conditions : — 



l80 PRINCIPLES OF POLITICAL ECONOMY. 

Firstly, from distance. Man's genius cannot conquer distance. 
He can in no wise do away with or reduce the space between two 
points of the earth ; but for us the obstacle of distance is prac- 
tically converted into a question of time. Now, human invention 
has been singularly successful in reducing the time necessary for 
traversing a given distance. If the time required for travelling 
any given distance in France is twenty times shorter to-day than 
it was in the thirteenth century, we are perfectly justified in saying 
that the result obtained is just as if France to-day were four hun- 
dred times smaller than it was then (for surfaces vary in propor- 
tion to the squares of the radii). Now, thanks to railways, this 
hypothesis has become a reality ; we can therefore say that the 
result of progress in effecting rapidity of communication is to 
indefinitely reduce the surface of the terrestrial globe. 

Secondly, from the nature of the commodity. An ox is not so 
readily transported as vegetables ; nor vegetables, as coal ; nor 
coal as easily as gold. The various obstacles are weight, fragility, 
difficulty of preservation ; but these may be greatly remedied by 
that rapidity of conveyance we have just spoken of. In the days 
of sailing-vessels, cattle could not have arrived, whether dead or 
alive, safe in harbors from America or Australia ; such a thing can 
be effected nowadays, thanks to the short duration of the voyage. 
Formerly, fish, game, fresh-gathered fruit and vegetables could not 
be sent from the outlying provinces to Paris ; now, they are sent 
daily, the journey taking less than twenty-four hours. Putting 
aside the quickness of conveyance, several inventions have helped 
to overcome this obstacle ; such as the refrigeration process, which 
allows of the transmission of fresh meat from Australia ; or the 
chemical process used for the preservation of articles of food {e.g. 
smoked meat, Liebig's process) . In spite of all these things, the 
difficulty of transporting certain objects, particularly meat, has 
even now economic consequences of considerable importance and 
great inconvenience. 

Thirdly, from the cofidition of the ways of communication. 
This is the most serious obstacle of all ; but over it human industry 
has achieved its greatest success. 



PRODUCTION. l8l 

By sea the road is already made, or rather, there is no need of 
a road ; the liquid element indiscriminately bears any weight, and 
its horizontal surface, which is everywhere alike, allows bodies to 
move freely in any direction. The weakest motive force — an 
unpaid-for force if the wind is used — is enough to set in motion 
enormous masses. It is not surprising, then, that the sea has 
always been the high road of commerce, and that countries sepa- 
rated by a thousand leagues of sea are really nearer than others 
divided by a hundred leagues of land. Even now, in spite of the 
progress of overland carriage, conveyance by sea is infinitely less 
burdensome ; i.e. requires far less labor. At Marseilles, the Eng- 
lish coal which has come through the Straits of Gibraltar, and has 
thus travelled nearly two thousand miles, is sold cheaper than the 
coal from the Grand-Combe mines (in France), which has only to 
come a distance of a hundred and ten miles. The cost of carriage 
of a ton by sea never exceeds one-fourth of a penny a mile, and 
is often much lower ; ^ while, as we shall see, the railway tariff is 
not far off two pence. 

On land the difficulty is greater. The broken surface of our 
planet scarcely permits of the transport of goods without the estab- 
lishment of artificial roads. 

The improvement of means of transport, whether by land or 
by sea, is shown in three different manners : roads (on land, 
macadamized causewayed roads, railways, bridges, and tunnels ; 
by sea, the track of the great maritime routes according to the 
direction of winds and currents, canals such as those of Suez, 
Panama, and Corinth) ; vehicular carriage (on land, the wonder- 
ful invention of the wheel ; by sea, the substitution of iron vessels 
f jr wooden ships) ; the use of motive power (steam-engines and 
locomotives). Transport by caravan, that is to say, on men's 

^ e.g. in January, 1885, wheat could be carried the whole way from San 
Francisco to England for dps. per ton, or from Odessa for 15^. (First Report 
of Royal Commission on Trade Depression, 1886, page 169.) For railway 
charges, see a paper by Mr. J. S. Jeans in Statistical Journal (London), 
December, 1886. — J. B. 



1 82 PRINCIPLES OF POLITICAL ECONOMY. 

backs, as in Africa, or by beasts of burden, as in Central Asia, 
no doubt can dispense with roads, but vehicular carriage cannot. 
Now the making of a road is a costly matter, and is the more ex- 
pensive the better it is ; i.e. the more resisting its surface is and the 
nearer its direction approaches to the horizontal. The railroad is 
a perfect road, but it is also the dearest. In Europe it costs about 
;^2 7,000 a mile, and nearly ^^7000 where it can be constructed 
at the least cost. There are now all over the world more than 
350,000 miles of rail, which have cost at least ^6,000,000,000. 
Thus an enormous amount of capital is sunk in them, which will 
evidently burden the transport of goods with the whole sum neces- 
sary for interest and redemption of the capital. In spite of this, 
if there is enough traffic, that is to say, if the goods carried by the 
railroad are of large enough quantity, much saving is effected in 
transport, without even reckoning the regularity, the convenience, 
and the quickness. The cost of carriage of a ton per mile is two 
pence or less, while by road it would be five pence ; thus there is 
a saving of at least two-thirds. The average price asked by the 
[French] railway companies is less than two pence, but we must 
take into account the gratuitous works done by the State on behalf 
of the companies, which represent a considerable sum, and would, 
if they had to be paid back, greatly increase the cost of carriage. 
We need not be surprised at the less charge of railways when we 
reflect that to do the same amount of work as an engine attached 
to a goods-train, we should require, at least, on an ordinary road, 
three hundred horses, and that they would cover ten times less 
distance. 

VII. The Breaking-up of Barter into Sale and Purchase. 

For the working of exchange it is not sufficient to have that 
third person, interposed between producer and consumer, whom 
we call the trader ; we require, also, a commodity to act as a 
common third interposed between the object given up and the 
object acquired ; this we call money. When exchange is carried 



PRODUCTION. 183 

on directly, commodity for commodity, it is termed "barter," but 
this is the most inconvenient and usually the most impracticable 
method. In fact, for the barter to be successfully effected, it is 
requisite that the possessor of some article should seek for some 
person who is disposed to acquire the commodity he possesses, 
and moreover (a coincidence the realization of which is even more 
difficult), who is willing to surrender the very article the former 
needs. Nor is this all : even allowing that this lucky meeting may 
occur, it is also necessary that the two objects to be exchanged 
should be virtually equal in value, — another and highly improbable 
coincidencCo 

Commander Cameron tells us what trouble he had in buying a 
boat when travelling in Africa in 1874. " Syde's agent wished 
to be paid in ivory, of which I had none ; but I found that Mo- 
hammed Ibn Salib had ivory and wanted cloth. Still, as I had no 
cloth, this did not assist me greatly until I heard that Mohammed 
Ibn Gharib had cloth and wanted wire. This I fortunately pos- 
sessed. So I gave Ibn Gharib the requisite amount in wire ; upon 
which he handed over cloth to Ibn Salib, who in his turn gave 
Syde Ibn HaHb's agent the wished-for ivory. Then he allowed 
me to have the boat." — Verney Lo Cameron, 'All Ac?'oss Africa, 
Vol. I, pages 246, 247. 

The finding of a commodity to serve as a common third reme- 
dies these inconveniences. It clearly presupposes the estabHsh- 
ment of an express or tacit convention between men living in 
society; viz. each man agrees to receive, in exchange for his 
products, this third comnjodityo Once that has been arranged, 
and the transaction goes admirably. Let the third commodity 
chosen be the metal silver. In exchange for the commodity I 
have produced and wish to dispose of, I willingly accept a certain 
quantity of silver, even though I may have no use for it. Why? 
Because I know that when I wish to acquire the object I need, I 
shall only have to offer its possessor the same quantity of silver, 
and he will accept it for the same reason as made me take it 
myself. 



1 84 PRINCIPLES OF POLITICAL ECONOMY. 

After what has just been said, it is evident that every transaction 
of barter can be broken up into two processes. Instead of ex- 
changing my commodity A for your commodity B, I exchange A 
for silver, to exchange that silver again for B. The first process 
is called "sale," the second "purchase" (at least when the com- 
mon third is in the shape of actual money) . We appear, then, to 
have a complication instead of a simplification. But a straight 
line is not always the shortest road, and this ingenious detour does 
away with an incalculable amount of trouble and labor. 

As we have explained, barter was rendered impracticable by the 
following circumstances : it was necessary for a certain producer 
C to meet as a fellow- exchanger another person D, who would be 
inclined at one and the same time, firstly, to acquire the object 
C wished to dispose of ; secondly, to surrender the very article C 
wished to acquire. Henceforth, thanks to money^ the producer 
C will certainly have to find some one willing to take his article,, 
but he will no longer have to ask from that trader D the article 
he himself needs. For that he will have to apply to another per- 
son, at another time and in another place. It was the indivisibility 
of these two processes that made them difficult ; but the tie once 
broken which united them, and each of them individually becomes 
easy enough. It will not be very difficult to find some one who 
needs your commodity, i.e. a buyer ; nor will it be difficult to find 
a person wiUing to surrender to you the article you require, i.e. a 
seller. 

But we must not forget that, though these processes are hence- 
forth separated, they nevertheless continue to form a whole, and 
that one cannot be conceived without the other. In our every- 
day life we are too much inclined to imagine that sale and purchase 
are each of them independent and self-sufficing processes. That 
is an illusion. Every purchase presupposes a prior sale ; for before 
being able to exchange your money for goods, you must have pre- 
viously exchanged your goods for money. Inversely, every sale 
points to a future purchase ; for if you exchange your goods for 
money, that is only to exchange that money at a later time for 



PRODUCTION. 185 

other goods ; for what else could be done with it ? Still, as money 
can be kept for an indefinite period without being used, a very 
long interval may elapse, — say several years or even several gen- 
erations, between the two acts of the play, — between the sale and 
the complementary purchase. But thought must connect these 
two acts, and in reality, in spite of the interposition of the common 
third and the complication it introduces, every man, in modern 
as in primitive society, lives by exchanging his products or his 
services for other products. 



We now come to metallic money. Though this subject, as well 
as those of paper money and of international trade, ought to be 
treated in the same chapter as exchange, with which they are 
directly connected, yet in consequence of the full discussion they 
require, we are obliged to devote to them as many special 
chapters. 



CHAPTER IV. 
METALLIC MONEY. 

I. Why the Precious Metals have been chosen as the 
Instrument of Exchange. 

The purpose of serving as the medium of exchange has not 
been assigned to objects in consequence of any express agree- 
ment, but certain substances have forced themselves upon men's 
choice because of particular advantages which fitted them for so 
high a function. 

In patriarchal societies it was the universally sought-for wealth, 
cattle, whether kine or sheep, which appears to have filled this 
part of " third " commodity, and many of the Indo-European lan- 
guages, and even the Basque tongue, have handed down to us the 
remembrance of this early form of money in the very name which 
they give to it. The most famihar instance of this is the Latin 
pecunia, which originally meant cattle or herds. 

In other countries and according to circumstances many other 
commodities have served as a common third ; e.g. rice in Japan, 
bricks of tea in Central Asia, furs in the Hudson Bay Territory, 
glass beads and pieces of cotton in Central Africa, salt-bars in the 
Kingdom of Dahomey ; but a certain class of objects have had 
the privilege of attracting man's attention in all societies which 
are in the least degree civihzed, and have not been long in de- 
throning every other article. I refer to the metals which we call 
precious, — gold, silver, and copper. 

Thanks to their chemical properties, which make them com- 
paratively inoxidizable, they have been granted us by nature in a 
crude state, and thus men have known and used them before their 
metallurgical attainments enabled them to become acquainted 
1 86 



PRODUCTION. 187 

with and use other metals, such as iron. It is remarkable that 
the old legend of the four ages of Gold, of Silver, of Bronze, and 
of Iron, places the four metals in the very order in which man 
must have become acquainted with them. Their no less note- 
worthy physical properties, brilliancy, color, and malleability, which 
have made them the objects of search from an early date either 
for ornament or for some industrial labors, would also account for 
the important part they have played in all times and with all 
peoples. 

Nevertheless they owe the undisputed position they hold to-day 
in consequence of higher qualities and of a manifest superi- 
ority over every other commodity. 

This superiority as a " third " commodity arises from the following 
causes (we have already seen the somewhat different causes which 
justified the superiority of the precious metals, not as the instru- 
ment of exchange, but as the measurers of value. These are not 
absolutely the same. See pages 74, 75) : — 

Firstly, easiness of transport. No other object has so great a 
value in so small a weight. The weight that a man can easily carry 
upon his back is just about half a hundredweight. Now more 
than half a hundredweight of coal is hardly worth \od.; of corn, 
5^. ; of wool, from 2Q>s, to 30i". ; of copper, 42^-. ; of ivory, ^26 
to ;£30j of raw silk, £^^o\ of silver, ^150 to ;^200j and of 
fine gold, ^3400. 

Secondly, identity of quality. The precious metals being, chemi- 
cally speaking, simple substances, are always of identical compo- 
sition. An experienced merchant will be able to distinguish 
Odessa from California corn, or a tuft of wool from an Australian 
sheep from one taken from the back of a Spanish merino ; but 
the most skilful goldsmith or the chemist armed with the most 
powerful reagents will find no difference between Australian gold 
and gold from the Ural Mountains. Here there is no need of 
samples. 

Thirdly, difficulty of counterfeiting. The precious metals are 
recognizable at one and the same time by eye, ear, and touch, 



1 88 PRINCIPLES OF POLITICAL ECONOMY. 

from their color, weight, and ring, and are readily distinguished 
from all other bodies. 

Fourthly, perfect divisibility. This divisibility must be under- 
stood not only in the mechanical sense (for gold and silver are 
wonderfully divisible either into threads or into plates), but also 
in the economic sense. Divide an ingot into a hundred parts, 
and you do not alter its value in the least ; the value of each 
fragment is exactly proportional to its weight, and the value of 
all the fragments put together is exactly that of the original ingot. 

Precious stones are superior to the precious metals in the first 
of the above requirements, viz. great value in small bulk, but in 
all the rest they are much behind. They are very variable in 
quality, liable to be successfully imitated, and in particular cannot 
be divided without their value being, so to speak, annihilated. 

Fifthly, indefinite durability. In consequence of their chemical 
properties, which make them refractory to almost all chemical 
combinations, and especially to oxidization, gold and silver can be 
kept for an indefinite period unchanged. There is no other body 
of which that can be said, and, when it refers to a body which is 
to typify and to store wealth, it is an incomparable advantage. 

II. The Invention of Coined Money. 

It is one thing to employ the precious metals as instruments 
of exchange ; it is another matter to use actual money. This has 
required an evolution which has passed through several very dis- 
tinct stages. 

Firstly. A beginning was made by the use of the precious metals 
in the shape of raw ingots; in every act of exchange, therefore, 
these ingots had first to be weighed, and then to be assayed. The 
legal forms of the ancient Roman law, such as niancipatio with 
its libripens, remind us of the days of the weighing of the instru- 
ment of exchange, whether silver or bronze. Even now in China, 
where coined money is not in use, traders carry their scales and 
touch-stone hanging from their girdles. Compare with this what 



PRODUCTION. 189 

Lenormant says in the first chapter of his Monnaies et Medailles. 
" Great and powerful empires like those of Egypt, Chaldsea, and 
Assyria, passed thousands of years in wealth and prosperity, with as 
extensive commercial relations as can have been carried on by any 
nation of antiquity ; they constantly employed the precious metals 
in business matters, but were absolutely ignorant of the use of 
money." 

Secondly. Growing weary of performing this double operation at 
each exchange, men conceived the idea of using cut ingots, whose 
weight and standard were fixed beforehand, and guaranteed for 
use by some official seal or stamp. The lawgiver who conceived 
this brilliant idea may justly boast of having really invented 
money ; from that time forward ingots are no longer weighed, but 
are counted ; this tale or counting is the special characteristic of 
money. The Greek race, to whom mankind owes so many fertile 
ideas, must also claim the honor of this. Specimens are still ex- 
tant of silver money from the isle of yEgina, and of a gold coinage 
from Lydia, both almost contemporaneous, seven hundred or eight 
hundred years B.C., and having the ovoid form of the primitive 
ingot.^ It is difficult to tell which was the earlier of the two. In 
China, ingots sometimes bear the trade-mark of certain business 
houses, which certifies to their weight and standard. 

Thirdly. There was still another step to be taken. Not only is 
the cubical or the irregular shape of the ingot an inconvenient one, 
but also, in spite of the impression of the stamp, nothing is easier 
than to clip the coin without leaving any traces of this debasing. 
It would always be prudent to weigh it to make sure of its being 
intact. To remedy these practical difficulties men have been led 
to adopt that form of coined money which is familiar to all civil- 
ized people ; to wit, small discs covered with impressions in relief 
on the whole of the surface, on face, reverse, and edge, so that the 

1 The gradual change in the oval or bean-shaped ingot with the anvil stamp 
upon it is traced by Mr. C. F. Keary in his paper on the " Morphology of 
Coins" (^Numismatic Chronicle (London), Vol. V, 3d series, pp. 165 seq.^ 
1885-6). - J. B. 



IQO PRINCIPLES OF POLITICAL ECONOMY. 

piece cannot be tampered with without simultaneous alteration 
of the design which covers it entirely. Henceforward that type 
of the piece of money has been reached which for centuries has 
not been sensibly modified, and for which we can adopt the defi- 
nition given by Stanley Jevons, " Coins are ingots of which the 
weight and fineness are guaranteed by the State, and certified by 
the integrity of designs impressed upon the surfaces of the metal." 
— Money J page 57. 

III. The Conditions to be fulfilled by All Good Money. 

All legal money should have an intrinsic value rigorously equal 
to its nominal value. 

We know that money has a twofold function conferred on it by 
law, that of being the only instrument of purchase and of pay- 
ment ; in other words, it cannot be refused in payments, either 
by sellers or by creditors. This privilege is what is called legal 
lender. But this privilege involves another condition, which we 
have just referred to. Here is a 20-franc gold piece. In engrav- 
ing on this coin the figure, 20 francs, at the same time as the 
national arms, the government certifies that the piece really has 
the value of 20 francs, and that it may be received by all men in 
full confidence. If the coin has not the value ascribed to it, the 
State is committing a clear fraud. Unfortunately for many cen- 
turies governments were not too scrupulous as to this matter, but 
nowadays it involves a question of national dignity and loyalty to 
obligations in which no government would dare to be found 
bcking. 

Every piece of money, therefore, must be looked at in a double 
light. In its capacity of coined money, it has a fixed value which 
is inscribed on one of its faces. As ingot, its value is proportional 
to the market price of the metal ; for there are markets and 
quoted prices for gold and silver just as there are for corn or 
cotton. 

Every time that these two values coincide, e.g. every time the 



PRODUCTION. 191 

little ingot of 6 grammes 45 1 milligrammes of the fineness of 9 
parts out of 10, which constitutes the French 20-franc piece, has a 
market-value bf 20 francs (which corresponds to the rate of 3444 
francs for a kilogramme of pure gold), the money can be said to 
be good, or, technically speaking, right. 

It appears, however, that the gold ingot when once coined 
should be worth a little more than the raw ingot, for the same 
reason as every object is worth more when manufactured than when 
in the raw state ; and the difference should be equal to the cost of 
making. Money, too, is really in the same case, but the expenses 
of manufacture are so small that no sensible difference is made. 
The Paris Mint charges 6 francs 70 centimes for coining a kilo- 
gramme of gold into money, or about 0.2 per cent. Thus in every 
20-franc piece there is a difference of about 4 centimes between 
the value of the coin and that of the ingot. This slight difference 
might be avoided by the State gratuitously converting the ingot 
into money ; i.e. by itself incurring the expenses of coinage. This 
is just what is done by England, and the English sovereign is thus 
the type of a perfect money. Its legal value and its market value 
are exactly identical. 

If the value of the ingot is higher than that of the coin, if, for 
instance, the gold is legally worth only 20 francs, and the weight 
of fine metal it contains is worth 21 or 2 2 francs, the money is 
said to be heavy. That is an excellent fault ; but still it is a fault, 
and, as we shall see, may have rather serious consequences. Yet 
we need not trouble very much as to such an eventuality. Firstly. 
Because it will not often happen that a government will strike too 
heavy money ; if it does so, it can only be inadvertently, for that 
operation clearly causes a loss. To coin gold pieces of 20-francs' 
worth from ingots worth 21 or 22 would be as ruinous as for a 
manufacturer to make rails at ^/\. a ton out of iron worth ;^4 ()s. 
Secondly. Even admitting that the event does come to pass, in 
consequence of certain. circumstances to be investigated later on 
{e.g. a rise in the price of metal supervening on coinage) , it cannot 
last long ; for, if it were known that the 20-franc piece were worth 



192 PRINCIPLES OF POLITICAL ECONOMY. 

21 or 2 2 francs as bullion, every one of us, in order to realize this 
profit, would hasten to treat our money as merchandise, and sell 
it by weight, and this operation would continue till the gold pieces 
had altogether disappeared. This situation, we shall see later on, 
occurs not infrequently in countries using a bimetalhst system. 

If, on the other hand, the value of the ingot is less than that of 
the coin, if, for example, when the coin is legally worth 20 francs, 
the weight of metal it contains is worth only 18 or 19 francs, the 
money is said to be light. 

Two reasons make this eventuality more to be dreaded than the 
other one. 

Firstly. Inversely to the preceding, it may lead a government 
into temptation. To make 20-franc pieces out of ingots that are 
only worth 18 or 19 is an alluring undertaking for a needy and 
not too scrupulous government ; and numerous governments, in 
truth, have succumbed to the temptation. It is enough to recollect 
the epithet of '' base coiner " with which public resentment has 
stigmatized the memory of several kings of France, — Phihp the 
Fair, for instance. ^'' Falsarii puhlici^^ was the term used of such 
kings. 

It is well known that the monetary unit under the old regime of 
France was called the //z'r<? (pound) ; but it is not so generally 
known that this derived its name from the fact that originally, 
say in the days of Charlemagne, it actually represented the 
weight of a pound of silver (the Carolingian pound of only 408 
grammes) ; i.e. it represented a value equal to that of more than 
82 present-day francs (making allowance for all variation in the 
purchasing power of money) . How has it fallen time after time 
down to that weight of five grammes which was the weight of 
the livre at the end of the old regime, and has become that of the 
present /r<3;;z^ ? Solely by a continual series of emissions of ever 
hghter and lighter money. Each monarch chpped a little off the 
weight of the old livre (pound) while endeavoring to preserve its 
former legal value. The history of the Enghsh pound is almost 
the same, though a trifle more honorable to the governments of 



PRODUCTION. 193 

England ; for having started from the same point of departure as 
the livre, it has stopped at the value of 25 francs, which is its 
present value. 

Secondly. Further, once such light money has entered into cir- 
culation, it is not forced out by the stress of circumstances as 
occurs with heavy money ; on the contrary, as will be seen when 
we come to Gresham's Law, all the trouble in the world is neces- 
sary to get rid of it. 

To maintain the equivalence of the values of the ingot and of 
the coin, it is customary under every good monetary system to 
grant to every one who desires to convert an ingot into money the 
opportunity of so doing, of course not at his own house, but 
through the agency of the Mint. This is called " liberty of coinage." 
As long as this exists, it guarantees the equivalence ; for if the 
value of the gold piece ever became higher than that of the ingot, 
every man would hasten to avail himself of the profit which would 
arise from the making of this money. Every one would buy gold 
ingots, and take them to the Mint to have them converted into 
coin until the diminution in the supply of the metalHc gold and 
the increase in coined gold had restored equality between the two 
values. 

Still, in all countries there are certain kinds of coins which do 
not satisfy the condition which heads this section ; i.e. their 
intrinsic value is more or less inferior to their legal value. These 
are called " token " money. They are usually coins of little value, 
generally copper, but sometimes also silver, which are not custom- 
arily used for important payments, but only as odd amounts. On 
these conditions we may depart without inconvenience from strict 
principles. In France, contrary to the common belief, it is not 
only copper pieces which are token money, but also all the silver 
pieces except the five-franc piece. The intrinsic value of the one- 
sou piece is no more than one centime ; that of the silver franc 
piece is no more than 75 centimes. We must note that copper 
pieces could not receive an intrinsic value equal to their nominal 
value without being burdened with very great weight, about five 



194 PRINCIPLES OF POLITICAL ECONOMY. 

times greater than the actual, which would be exceedingly incon- 
venient. There is another reason, as we shall see later on, for 
forcing the government to convert silver coins into token money. 

Although the law gives up the strict principle, it still respects it 
in a way by refusing to all token money the character of legal 
money. No one is compelled to receive it in payment. For 
copper pieces the limit is a sum higher than five francs, for sil- 
ver pieces (except the five-franc piece) a sum above loo francs. 
In these cases the French law suspends liberty of coinage, for 
without this every one would coin this token money to gain the 
difference between its real and its legal value. The government 
reserves to itself the right of issuing a large enough quantity to 
satisfy public requirements, and should make it a rule never to 
issue too large a quantity. 

IV. Gresham's Law. 

" In every country where two legal moneys are in circulation, 
the bad money always drives out the good." 

In these terms is expressed one of the most curious of the laws 
of political economy, which has been named ^ after the commercial 
adviser of Queen Elizabeth, who is credited with its discovery 
three centuries ago. But long before him, Aristophanes, in the 
Frogs, had pointed out and carefully analyzed this curious fact ; 
viz. the preference men always have for bad money. 

"The public has often seemed to us to treat the wisest and the best of our 
citizens just as it does old and new coins. For we do not use the latter at all, 
except in our own houses or abroad, though they are of purer metal, finer to 
look at, the only ones that are well coined and round; on the contrary, we 
prefer to use vile copper pieces, struck and stamped in the most infamous 
fashion." — Aristophanes, Frogs, vv. 718-726 (Brunck's ed.). 

The particular strangeness of this fact and of the law which 
expresses it, arise from the circumstance that it would be incom- 
prehensible in the case of any other article. It would be impos- 

1 Mr. H, D. Macleod first gave currency to the expression " Gresham's Law." 
It is simply a particular case of the general principle, " greatest gain with least out- 
lay" ; " buy in the cheapest market and sell in the dearest." 



PRODUCTION. 195 

sible to understand how it was that men should have such bad 
taste as to prefer, in general, bad to good merchandise. The eco- 
nomic organization of all our societies which possess liberty of 
labor and competition can only work in so far as we grant as an 
axiom the very opposite ; viz. that under all circumstances men 
will prefer the product which is of the better quality and of the 
higher value. Why reverse this when money is the article in 
question ? 

Our astonishment vanishes when we reflect that money is not, 
like other wealth, destined either for our consumption or for pro- 
duction, but is merely for exchange. Of two fruits, we prefer the 
more luscious ; of two machines, the one which works the better ; 
but of two pieces of money of unequal quahty it matters little to 
us whether we employ one or the other, for they are not for our 
personal use, and are only to pay our creditors and our tradesmen. 
Now, we have no motive to choose the better article for this pur- 
pose ; on the contrary, it is to our interest to choose the worse, 
and we do not fail to consult our interest. The only condition is, 
that the creditor or tradesman shall not be able to refuse it ; in 
other words, that the bad money shall have paying power as well as 
the good. It is on this very hypothesis that Gresham's Law is appli- 
cable ; i.e. when both of the moneys in question are legal moneys. 

The foregoing explains why the bad money remains in circu- 
lation, but not why the good disappears. What becomes of it, 
then? 

It goes in three different ways : by hoarding ; by selling by 
weight ; and by payments to the foreigner. 

Fi7'stly. Hoarding. When people want to lay by money for 
possible emergencies, i.e. when they wish to keep it for them- 
selves, they comply with the general rule and are careful not to fix 
their choice on bad pieces. On the contrary, they choose the best, 
because it is these that offer them the most security. The panic- 
stricken people who wished to hoard money during the French 
Revolution did not waste their time in hoarding assignats, but laid 
hold of good louis d^or. In this manner, especially at critical 



196 PRINCIPLES OF POLITICAL ECONOMY. 

times, a considerable amount of the best money may disappear 
from circulation. Still, this first cause of loss is a comparatively 
trivial one, and in any case does not last for a long time. 

Secondly. Payments to the foreigner- have a greater effect. 
Although a country need never pay in coin for more than a small 
part of its imports, still it has always to send abroad remittances 
in specie. Now, though to pay our home debts to our fellow- 
citizens we have by law the opportunity of using bad money as 
well as good, this alternative fails us when we have to settle for a 
purchase made abroad. As the foreign creditor is by no means 
obliged to accept our money, he will only take it for the weight of 
fine metal it contains ; i.e. for its actual value. Therefore, we can- 
not dream of sending him light money. Let us keep that, then, for 
home trade, since in that quarter it is as serviceable as the other, 
and let us reserve the good money for foreign trade. This is the 
second and a highly important cause of the loss of good money. 
It is curious that Aristophanes had already noticed the fact that 
the public, which prefers bad money, employs good money " for 
indoor use [hoarding] and outside the frontiers [foreign trade]." 

Thirdly. But the cause of the most rapid disappearance of 
good money is sale, sale by weight. Selling money by weight ! 
Surely that appears to be a curious business, and its use does not 
seem easy to explain. Nevertheless, it is very simple. As soon 
as, in consequence of a rise in the value of gold, the gold coin 
acquires an intrinsic value which is higher than its legal value, — 
as soon as it is worth more as an ingot than as a coin, — it is 
clearly to people's interest to cease to use it as a coin, and to 
employ it as bullion. It is therefore withdrawn from circulation, 
and finds its way to the market for precious metals. If the value 
of bronze were to rise a great deal, is it not almost certain that 
numerous articles made of bronze, such as bells, cannons, statu- 
ettes, etc., would be melted down, so as to realize the value of the 
metal they contain ? Or further, if we suppose that the value of 
paper was to increase very much, would not many books be pulled 
down from library shelves to be sold by weight to the waste- 



PRODUCTION. 197 

paper dealer? It is just the same with money. When the pre- 
cious metal rises in value, the pieces of money coined from that 
metal lose their character of money, and become articles of mer- 
chandise that all men hasten to realize ; i.e. to sell. 

Gresham's Law is applicable in the following cases : 

Firstly. Every time that a worn money is in circulation together 
with a newly coined money. 

It was under such circumstances that the law was observed by 
Sir Thomas Gresham. At that time a new coinage had been 
struck to replace what was then in circulation, which was alto- 
gether depreciated far more from clipping than from wear ; and 
it was noted with dismay that new coins speedily disappeared 
whilst the old ones were more abundant than ever. 

Unless, then, a government resorts to frequent new coinages, it 
will later on encounter great difficulties in replacing the old and 
worn-out coinage by the new. 

Secondly. Every time that a depreciated paper money is in cir- 
culation together with a metallic money. 

Under these conditions, if the depreciation of the paper is even 
for the shortest time at all serious, the coin is driven out on the 
largest possible scale. Thus, of late years the whole of the Italian 
money was driven into France. Vainly did the Italian government 
adopt various measures to cause its return, and even obtain from 
the French government an interdiction on its circulation in France. 
They would never have succeeded had they not attacked the evil 
at its root by withdrawing the paper money, or at least denying to 
it its forced circulation. 

We have seen the two countries w^iich are the producers of the 
precious metals, the United States and Russia, fail in their attempt 
to keep at home that metallic money, the raw material of which 
they furnished to the whole world. Useless were their endeavors 
to strike a new coinage ; it was always pitilessly driven out by 
their depreciated paper money. 

Thirdly. Every time that a light money is in circulation together 
with a right money, or even when a right money is in circulation 
together with a heavy money. 



198 PRINCIPLES OF POLITICAL ECONOMY. 

In this case, the lighter of the two moneys drives out the other. 
This is by far the most important of the three cases ; it occurs in 
almost all the countries which adopt at one and the same time 
both a gold and a silver coinage. This case will be examined in 
the discussion of monometalHsm and bimetallism, of which we 
propose to speak in the ensuing section. 



THE QUESTION OF MONOMETALLISM AND BIMETALLISM. 

I. The Necessity of taking Several Metals, and the 
Resulting Difficulties. 

The discussion which has long been waged over this celebrated 
subject does not, as might be thought, turn upon the question, 
whether a country should employ several metals in its monetary 
system, or should content itself with only one. That question 
does not even arise ; for it is evident that every civilized country 
is obliged to employ at the same time gold coins, silver coins, and 
coins either of copper or of some similar metal. For example : 
how could one dream of using gold alone ? The gold five-franc 
piece used in France is of itself inconvenient enough because of its 
smallness : what, then, would be a gold sou ? A mere, impalpable 
grain ! Far less, unless we were to revert to the days of Lycur- 
gus, could we dream of using only .copper ; for a twenty-franc 
piece in copper would weigh half a score of kilogrammes. Even 
silver, though less inconvenient on account of its intermediate 
value, would not suffice by itself; for the five-franc piece is already 
too large, and the twenty-centimes piece is too small for ordinary 
use. We are obliged, then, to use all three metals at the same 
time. 

But there is no necessity to use all three as legal money ; in fact, 
we know that one of them^ copper, has never that quahty, and is 
always token money or small change. The other two, then, are to 



PRODUCTION. 199 

be dealt with. Are both of them to receive the character and 
attributes of legal money, or is one only? This is what used to 
be called the question of the single or the double standard, but 
it is now more correctly termed monometallism or bimetallism. 

If we grant the title of legal money to only one of the two, — 
say gold, — there is then no difficulty. The silver coinage, like 
the copper coinage, is relegated to the rank of token money ; a 
purely conventional value is given it, but no one is obliged to 
receive it in payment. The gold coinage is the only one which 
has legal tender, and for which we need trouble to maintain a 
perfect equivalence between its legal and its intrinsic value. 

If we allow both coinages to assume the character of legal 
money, the situation becomes far more complicated. For a better 
understanding of these difficulties let us take the French system, 
which may be regarded as the type of the bimetallist system, and 
look back to the time when it was entirely reconstructed by the 
legislature (the law of 7th Germinal, An XI, March 28th, 1803). 

The unit of money was the old livre, converted into francs. 
It was a silver piece, and silver was therefore taken as legal money ; 
indeed, at that time none would have dreamt of denying it that 
title. The same character had also to be allowed to gold. 

For the sake of clearness let us take the two similar coins which 
are both of them to be found in the French monetary system, — 
the silver five-franc piece and the gold five-franc piece. We desire 
both of these to be legal money. It is necessary, then, for both 
of them to possess an intrinsic value which is rigorously equal to 
their legal value ; that, as we know, is a sine qua non. It is not 
difficult to satisfy this condition as far as concerns the silver coin. 
Silver is worth, or at any rate was worth at the date we have 
harked back to, 200 francs a kilogramme ; an ingot of 25 grammes, 
therefore, was worth exactly five francs ; we must consequently 
give a weight of 25 grammes to our silver five-franc piece. With 
regard to that, then, the requisite condition has been fulfilled. 
But what weight must we give to our gold five-franc piece ? At 
that time a kilogramme of gold was worth 3100 francs (of the 



200 PRINCIPLES OF POLITICAL ECONOMY. 

same fineness as the silver coin, 9 parts in 10). If, then, 620 
coins are struck from one kilogramme of gold, each of them will 
be worth exactly 5 francs (for 620 x 5 = 3100), and will weigh 
1.6 1 3 gramme. For the gold piece, too, the necessary condition 
will have been complied with. 

Let us take these two coins and place them in the scales of a 
balance ; we shall see that to keep in equilibrium the silver piece, 
we must put in the other scale 15 gold pieces, with a half over ; or, 
if the reader wishes, to counterbalance two of the silver coins we 
have to put into the other scale 31 of the gold coins. That proves 
to us that the experiment has been successfully performed ; for 
at that date the kilogramme of gold was worth just 15I- times as 
much as the kilogramme of silver (3100 francs for the gold as 
against 200 francs for the silver kilogramme) . Let us bear in mind 
that ratio of 15.5 ; it is the legal ratio between the values of the two 
metals, and is as celebrated in political economy as 77 = 3.1416 
is in geometry. So far everything has gone beautifully, but let us 
wait for the end. 

In 1847 were discovered the Californian gold-fields; in 1851, 
the AustraHan. The annual output of gold is therefore multiplied 
by 500,000,000 or 600,000,000 francs a year instead of about 
100,000,000. On the other hand, silver becomes scarce in conse- 
quence of the development of trade in India which absorbs large 
quantities of it. The result is that the respective value of the two 
metals alters ; in the market for precious metals, to obtain one 
kilogramme of gold, it is not necessary to give, as heretofore, 15-I- 
kilogrammes of silver; 15 are enough, or even 14I-; in other 
words, gold has lost more than 6 per cent of its value. Hence- 
forward it is clear that these little ingots of gold which constitute 
the gold coins have undergone proportional depreciation; the 
five-franc gold piece is really worth only 4 francs 70 centimes. 

What should be done to restore the equilibrium ? Evidently the 
addition of a little more gold to each gold coin, about 6 per cent 
more ; to restore the equivalence between the intrinsic value and 
the legal value, it is necessary that the silver five-franc piece should 



PRODUCTION. 20I 

counterbalance 1 5 or i4-|- gold five- franc pieces. But then the whole 
of the gold coinage will have to be restruck? Let us wait a little. 

Twenty years later, about 1873, there is another change. The 
silver mines discovered in the Western American States throw 
upon the market enormous quantities of silver ; at the same time 
Germany adopts the gold standard, demonetizes her silver money 
and casts upon the market her thalers which she no longer wants. 
Once more the respective value of the two metals alters, but this 
time in the opposite direction. In the market for precious metals, 
for one kilogramme of gold one can get no longer merely 15I- kilo- 
grammes of silver, but 16, 17, 18, 20, even as many as 22. In 
other words, silver has lost more than a quarter of its value rela- 
tively to gold. Henceforward it is clear that every ingot of silver 
which constitutes a silver coin, has undergone a proportional depre- 
ciation ; the five-franc silver piece is really worth only 3 francs 
50 centimes. What should be done to restore the equilibrium? 
Evidently to put far more silver into each silver coin, to increase 
their weight by a quarter, to make the silver five-franc piece weigh 
as much as 20 or 22 gold five-franc pieces; then the equivalence 
would be restored between the intrinsic and the legal value. But 
then the whole of the silver coinage will have to be restruck. 

We ask ourselves in amazement, if we wish to preserve for both 
of our moneys the characteristics of right money, i.e. the rigorous 
equivalence between their intrinsic and their legal value, must we 
be incessantly recoining first one and then the other, in order to 
fit their weights to the variations in value of the two metals? 
That, it seems, is the inevitable conclusion. But it is impracti- 
cable and absurd ! 

A little reflection will show that it would be enough, if neces- 
sary, to alter the weight of one only of the two moneys, and take 
the other (always the same one) as the unit ; for example, to take 
as unit the five-gramme silver franc, and alter the weights of the 
gold coins, sometimes above, sometimes below the legal weight, 
according to the variations in value of the metal gold. But in spite 
of this simplification, the process would scarcely be practicable. 



202 PRINCIPLES OF POLITICAL ECONOMY. 

Similarly, we might leave invariable the weight of the gold coins, 
efface the indication of legal value which is figured on their sur- 
faces, and allow their value to oscillate freely according to the laws 
of supply and demand, just as in some countries, for example in 
Cochin China, there are variations in the value of the piastre. But 
then the gold pieces are no longer real pieces of money ; they are 
nothing more than ingots which circulate like any other commod- 
ity. There will then be a quoted price for twenty-franc pieces, 
just as for cotton or for corn, and it will vary in the same manner. 
What a complication to introduce into business matters ! what 
snares, especially for the unwary, to fall into ! 

The legislators of Ge7'77iinal, An XI, when organizing the French 
monetary system, saw perfectly well the difficulties that might 
arise, and even proposed both of the remedies which we have 
just mentioned.^ 

II. How it is that Bimetallist Countries really have but 

One Money. 

As we have just seen, every bimetallist system presents the 
serious disadvantage of not being able to maintain, for both 
moneys at once, that equivalence between intrinsic and legal 
value which should be the characteristic of all good money. In- 
cessantly, according to the variations in value of the two metals, 
one of them will become too heavy or too light. 

It might be thought, perhaps, that this disadvantage is theoretical 
rather than practical. What does it matter, one might say, whether 
our gold or our silver coins have a legal value a little above or 
below their real value ? No one notices it, and in any case no 
one suffers from it. 

That is a mistake ; in such a situation there is a practical disad- 

1 For the arguments on the other side, see the Proceedings of the Bimetal- 
lic Conference (held in Manchester, April, 1888, and in London, December 
of the same year), and especially the speech of Professor Foxwell at the April 
meeting. — J. B. 



PRODUCTION. 203 

vantage, and more than that, a real peril. It is this : the lighter 
money of the two will gradually drive the heavier out of circula- 
tion, so that every country, which is nominally under the double- 
standard system, as a matter of fact falls into the singular position 
of never being able to keep in circulation more than one of its two 
moneys, and that money is the worse one. A periodical movement 
of flux and reflux carries away the metal which is high in value, 
and brings back that which is low. This is nothing but the pure 
and simple application of Gresham's Law, which we have just 
studied, but the history of the French monetary system for the 
past forty years is a wonderful proof of it. 

When under the Second Empire gold became low in value in 
consequence of the circumstances mentioned in the previous 
chapter, the French silver money began to disappear and to be re- 
placed by gold coins, — by those beautiful Napoleons. This money 
people were not much accustomed to at that time ; it was greatly 
admired, and in it courtiers hailed the wealth and the glory of the 
new reign ; in reahty it was only so abundant because it was made 
of depreciated metal. This phenomenon of the tralismutation of 
metals is very easily explained. 

The London banker who wished to obtain silver to send to 
India naturally tried to buy at the place where it could be got the 
cheapest. In London, for a kilogramme of gold he would not 
have been able to obtain more than 14 kilogrammes of silver. 
But by sending his kilogramme of gold over to the Paris Mint, 
he could have struck 3100 gold francs, and then exchanged these 
3100 gold francs for 3100 silver francs, which weigh exactly 
3100 X 5 grammes, i.e. 15^ kilogrammes. Thus for his kilo- 
gramme of gold he had succeeded, in fine, in obtaining 15^ kilo- 
grammes of silver. The operation could also be performed in the 
reverse manner. A Paris banker put together 2800 silver one-franc 
pieces weighing exactly 14 kilogrammes (2800 x 0.005 = i4)- He 
sent these 14 kilogrammes of silver to London, and obtained in ex- 
change I kilogramme of gold, since that was the market value of 
these two metals. He then had his kilogramme of gold sent back 



204 PRINCIPLES OF POLITICAL ECONOMY. 

from London and had it coined at the Paris Mint into 3100 gold 
francs. Thus his gross gain on the transaction was 300 francs, or 
rather more than 10 per cent, and even when the cost of coinage 
and of transport had been deducted, the transaction was still 
extremely profitable. It is easy to see that, thanks to this trade, 
a certain quantity of silver money left France, and was replaced 
by an equal quantity of gold money. That is the very way in 
which Gresham's Law works ; heavy money is replaced by light 
money. Silver coins were exported from France to India by 
whole ship-loads. They were bought for their weight in silver, to 
be sold to the Bombay and Madras Mints, and there converted 
into rupees. During this period those Indian Mints turned into 
rupees more than two thousand million French silver pieces. 

It was not long before there was a veritable dearth of silver 
money. In the old days prohibitive measures would have been 
speedily resorted to, to prevent the escape of this silver money, 
and penalties would perhaps have been inflicted on exporters. 
Economic science, by pointing out the cause of the evil, was 
enabled to offer a more efficacious remedy. Silver money was 
disappearing ; why ? because it was too heavy ; it was enough, 
then, to lighten it by diminishing its weight or merely the pro- 
portion of fine metal, and men could be certain that its wings 
had been clipped ; it would not stir henceforward. This was 
effected by mutual agreement between France, Italy, Belgium, 
and Switzerland by the convention of December 23, 1865. The 
standard of all silver coins, save five-franc pieces, was lowered 
from 900 parts out of 1000 to 835 parts out of 1000, a diminution 
in their value of rather more than 7 per cent. All those coins 
became then, and have since remained token money, and accord- 
ing to the invariable principles that obtain in this matter have 
since that date lost their character of legal money, and are only 
received as small money, up to the sum of 50 francs between pri- 
vate persons, but to any amount in public offices. Why was an 
exception made in the case of the five-franc piece ? There was 
no sound reason for this, but it was France that insisted on the 



PRoDucttON. 20$ 

Concession. To turn all silver coins into token money would have 
been to entirely abandon silver money as legal tender ; it would 
have been a clear adoption of the gold monometallist system, as 
in England, and such a revolution in their monetary system terri- 
fied the French government. The five-franc piece was therefore 
kept with its former weight and fineness and character of legal 
money. Naturally it continued to escape, but it could be more 
easily dispensed with than the smaller change ; if need be, it could 
be replaced by the gold five-franc piece. 

From 1870 onwards, we have seen that a reverse revolution was 
effected in the respective values of the two metals, and that the 
French monetary system was once more thrown out of order, but 
this time in the opposite direction. It was the gold money which 
became too heavy, and consequently began to emigrate ; the silver 
became too light and began to swarm. The operations just ex- 
plained were renewed, but the other way about. 

A banker in Paris procures 3100 francs in gold, either in twenty- 
franc or in ten-franc pieces, it matters not which. That comes to 
exactly a kilogramme of gold. These the banker puts into a bag, 
and sends them off to London. In the London market for pre- 
cious metals, for one kilogramme of gold 20 kilogrammes of silver 
can now be obtained. The banker, therefore, buys 20 kilo- 
grammes of silver, sends them back to Paris, and has them turned 
into coin at the Mint. Since the Mint must strike from one kilo- 
gramme of silver either 200 one-franc pieces or 40 five-franc 
pieces, our banker receives 20x200 = 4000 francs in five-franc 
pieces, — a gross profit of 900 francs. Deduct the cost of car- 
riage and of coining, and also the premium necessary for obtain- 
ing gold pieces if they have become scarce, and none the less the 
transaction will be exceedingly lucrative. It is clear that for 
France the effect of the operation is this : There is a decrease in 
gold money and an increase in silver money. Were it repeated 
indefinitely, the result of this simple operation after a certain 
lapse of time would be to entirely substitute in the circulation sil- 
ver money for gold money. 



206 PRINCIPLES OF POLITICAL ECONOMY. 

It was necessary then that the Powers who had formed the 
Latin Union (Greece having also joined it) should set to work to 
remedy this new danger. Just as in 1865 they had stopped the 
flight of silver money by lowering its standard, so too they would 
have been able to prevent the departure of gold money by lower- 
ing its standard or diminishing its weight. But these constant 
recoinings, first of one money, then of another, would have ended 
in the disorganization of the whole monetary system. It was 
thought advisable to resort to a more simple plan. The conven- 
tion of November 5, 1878, co??ipletely sitspejided the striking of 
five-franc pieces. Henceforward the transaction just described 
became impossible ; there was no longer any profit in buying silver 
ingots abroad, for they could no longer be coined into money in 
France. 

This measure, too, fully succeeded in preserving for France her 
fine stock of metallic gold, which had not yet been sensibly drawn 
upon. But, as can easily be believed, this convention, which 
closed to the metal, silver, a market of nearly eighty millions of 
men, and thus remarkably restricted its sale, had the effect of has- 
tening still more the depreciation of the metal silver; in other 
words, of aggravating the evil. Then the metal silver, which till 
that time had not lost more than 10 or 12 per cent of its value, 
was seen to fall, flight by flight, down to the price at which it was 
in August, 1886, of 140 francs per kilogramme, instead of its legal 
price of 200 francs (corresponding to a ratio of i to 22^ between 
the values of the two metals) . 

Since then there has been a sensible rise, and now (July, 1890) 
the price is 170 francs per kilogramme, or a ratio of i to 18^. 
But this rise seems to be partly factitious and due to speculation. 
Even now the coining of silver money has not been resumed, and 
no one can say if it ever will be. Henceforward we can say that 
though the countries of the Latin Union are still legally under the 
bimetallist system, they have in reaUty almost become gold mono- 
metallists. Of all their silver coins, there is but 07ie which is legal 
money, and that is the ve?y one which is no longer struck ! 



PRODUCTION. 207 

III. Whether it is Advisable to adopt the Monometallist 

System. 

After the foregoing explanation there seem to be no grounds 
for hesitation. The monometallist system is infinitely more simple 
than the bimetallist. It cuts short all the difficulties we have just 
pointed out. Why hesitate, then? 

That is the very Hne of argument that is taken up by nearly the 
whole Classical school of economists ; for them monometallism is 
almost like free trade, an article of faith. 

Besides, it is the system which has long been adopted by the 
first commercial nation in the world, England (since 181 6), and 
several other countries have followed in her footsteps, to wit, Por- 
tugal, Germany (in 1873), ^^^ three Scandinavian states (in 1875). 
Nevertheless, the bimetallist countries — first of all, the group of 
the Latin Union, comprising France, Italy, Belgium, Switzerland, 
and Greece ; then other European states which adhere to the 
same regime, Holland, Spain, Roumania, Servia, etc. (Russia and 
Austria are also reckoned among the bimetallist nations, but in 
fact they have scarcely any metallic money and are under the 
paper money system), and finally the United States of America — 
have never yet consented to abandon their system, nor do they 
seem inclined to do so. On the contrary, in the frequent Con- 
gresses which have met of late years, they have attempted, though 
without success, to bring back to the bimetallist system the States 
which have abandoned it. It should be noted that the United 
States have not taken the same ratio between the values of the two 
metals as has been adopted by the Latin Union ; between the 
gold dollar and the silver dollar the ratio is i to 16. The United 
States would long since have become monometallist, like England, 
were it not for the necessity of keeping a market open for their 
rich silver mines. But, as a matter of fact, their silver dollars 
scarcely circulate at all. For that reason, in accordance with the 
Bland Act, which has made much stir, they still coin 2,000,000 of 
dollars a month, and now, in consequence of the passage of the 



2o8 PRINCIPLES OF POLITICAL ECONOMY. 

Silver Bill, 4,500,000 ounces are to be bought monthly at market 
prices, and 2,000,000 of these are to be coined into silver dollars 
until July, 1891. The reason for all this hesitation is, that the 
adoption of the monometallist system is not without disadvantages, 
nay, even dangers, both for the present and in the future. 

Firstly. The first disadvantage is that the adoption of the gold 
standard involves the demonetization of silver ; for if the five-franc 
piece is deprived of its character of legal money, it must also be 
withdrawn from circulation. Now there are in France, roughly 
speaking, three thousand millions of these coins, but if sold for 
their weight in silver they would hardly be worth more than two 
thousand millions. The cost of this step, then, would amount to 
about one thousand millions, and perhaps more, for it is perfectly 
evident that such a measure would inevitably hasten a further fall 
in the value of the metal silver. 

Perhaps it will be said that the State would have nothing to do 
but to allow the loss to fall on the holders of five-franc pieces. In 
the first place, that would scarcely be an honorable proceeding for 
the State, which has guaranteed the value of these pieces by stamp- 
ing that value on the coin itself; and in any case it would ruin 
the Bank of France, which has in its cash reserve more than 
1,200,000,000 francs in silver ; on these it would lose at least 
400,000,000, or more than double its capital ! 

When, in 1873, Germany wished to demonetize her silver money, 
she was obliged to desist from carrying out the transaction in its 
entirety because the cost was too great ; yet the fall in silver then 
was far from being what it has since become. 

Secondly. A second disadvantage is, that if all countries took 
gold as their standard, there is reason to fear that the supply of the 
metal would no longer be sufficient for all requirements. The pro- 
duction of gold is already beginning to diminish. The quantity 
annually produced in the mines, which fifteen years ago was more 
than 600,000,000 francs, has fallen to about 500,000,000 ; and 
then it must not be forgotten that at least half of this product is 
absorbed for industrial uses. It is possible, however, that the 



PRODUCTION. 209 

working of the recently discovered mines in the Transvaal may 
largely swell the production of gold. 

Still (from the bimetallist point of view) there is reason to 
fear that gold, becoming at the same time scarcer and more 
sought for, will greatly rise in value. What does that matter? some 
may say ; the only consequence is that with a twenty-franc gold 
piece a man will be able to obtain twice the quantity of goods he 
formerly could. What is the harm of that? The harm lies pre- 
cisely in the general fall in prices which is presupposed by such an 
hypothesis. It is already the opinion of many economists that the 
crisis which all producers have complained of for several years 
past has no other cause than the appreciation of gold, as it is 
called, i.e. its rise in value occasioned by its scarcity ; their con- 
clusion is that the general adoption of the .monometalKst system 
would seriously aggravate this scarcity, and consequently heighten 
the crisis itself. 

To this the partisans of monometalHsm reply that the improve- 
ment in means of credit, which enables men to more and more 
easily dispense with metallic money, more than compensates for 
this diminution, and the answer appears to be well founded (see 
"Paper Money"). 

Thirdly. Finally, the third disadvantage is, that variations in 
price are far more to be feared with a single standard of values 
than with two. 

When there is but a single money for the measurement of 
values, the consequence of every variation in the value of this 
money is an inverse variation in prices, and these variations, if at 
all frequent or sharp, throw out of working the whole commercial 
organization, and provoke the crisis. 

When, on the other hand, two moneys are employed for the 
measurement of values, a kind of compensation is set up between 
the two which is very favorable to the stability of prices, and there- 
fore to the prosperity of trade ; for in business stability is always 
of the highest consideration. The explanation of this phenomenon 
of compensation is rather subtle, but it is not difficult to grasp its 
main idea. 



210 PRINCIPLES OF POLITICAL ECONOMY. 

It is enough to recollect that the principal cause of the superi- 
ority of the precious metals as the measure of values arises from 
the fact that their variations in quantity are a small matter when 
taken relatively with the existing mass. But this condition is the 
better fulfilled, the larger the amount of the stock of metal, and 
the more varied the sources which supply it. When it is com- 
posed of two metals, it will, to begin with, form a double mass, 
and further, as it is hardly probable that the causes which bring 
about a glut of production of one or other of the two metals 
will coincide in the case of both, the variations will be less felt. 
Similarly, the rises in level of a river are less sudden and less to be 
feared, the more numerous its tributaries are, and the more distant 
and the more varied in geological and climatic features the dis- 
tricts in which they take their rise. From this point of view it is 
better that our reservoir of metals should be fed by two tributaries, 
gold and silver, rather than by one only, and were there three or 
four, that would be better still. Indeed, had there been but the 
metal gold, the discovery of the Californian and Australian gold 
fields would have caused the utmost perturbation through an 
excessive rise in prices. Their exhaustion would cause a still more 
formidable shock. It does not greatly matter whether prices be 
high or low ; the point of cardinal importance is that low prices 
shall not abruptly follow on high prices, or vice versa. 

We can now very easily understand why the bimetallist countries 
hesitate to adopt monometallism ; however weak be the .thread 
which still binds them to bimetallism, the cutting of it may cost 
them dear. For the moment they feel sufficiently protected by 
the law which prohibits the coinage of silver money — in fact, 
since that law came into operation, the quantity of gold in France 
has not been observed to diminish in disquieting proportions — ■ 
and postpone their decision till a more favorable occasion ; for 
example, the time when the opening up of China or of Central 
Africa to European trade will result in heightening once more the 
value of the metal silver. Indeed, this status quo policy appears 
to be the wisest. There is no great evil, nay, there is even some 



PRODUCTION. 21 1 

good, in the circumstance that the world comprises at one and the 
same time, gold monometallist countries, silver monometallist 
countries (such as China and India), and bimetallist countries 
which serve as connecting links between the two. No doubt the 
bimetallists are in a somewhat difficult position ; they have always 
to defend the one of their two moneys which happens to be appre- 
ciated, but they can succeed in this to a certain degree ; further, 
even if they should be obliged to send abroad part of the appre- 
ciated money, as they would not do this for nothing, and would 
make the receivers pay a premium on it, in the long run the 
matter would be a business transaction just like any other opera- 
tion, and no great harm would result. 

IV. Whether the Respective Value of the Two Metals 
could not be fixed by an International Understanding. 

The partisans of bimetallism go even further ; they assert that 
none of the difficulties, which appear to be inherent in the bi- 
metallist system would be produced, were that system sanctioned 
by an international agreement between all civihzed peoples, on the 
basis of the 15I- ratio or some other ratio. 

It is this assertion that particularly outrages the feelings of 
economists of the Classical school. It would be impossible, say 
they, for the will of one government, or even of all governments 
together, to fix the respective values of gold and of silver ;/<? vari- 
eiitu}% any more than the respective values of oxen and sheep, or 
of corn and hay. The value of articles is solely determined by 
the law of supply and demand, and is altogether beyond the scope 
of legislative regulation ; the value of the precious metals is no 
exception to the rule. 

In our opinion, this line of argument of the Classical school is a 
little too unqualified. Gold and silver are not commodities which 
can be likened to oxen or sheep, or any other article, for the 
reason that their principal utility is to serve for the fabrication 
of money. When, therefore, we speak of the demand for the 



21^ PRINCIPLES OF POLITICAL ECONOMY. 

precious metals, we must understand by that almost exclusively 
the demand made by a dozen governments for their Mints. Now 
there is nothing absurd in thinking that if these dozen buyers 
agreed among themselves to fix the respective prices of the two 
metals, they could not succeed in so doing. If they announce 
that they will all buy the kilogramme of gold at the rate of 3100 
francs, and the kilogramme of silver at the rate of 200 francs, it is 
highly probable that they will give the law to the market. The 
Classical school say that it would be absurd to decree that an ox 
shall always be worth ten sheep, or a bushel of corn two bushels of 
hay. Certainly ; for the market for those commodities is un- 
bounded, and each man of us, by his personal tastes, shares in 
regulating current prices therein. But if in the whole world there 
were only a dozen people who consumed beef or mutton, it is 
highly probable that, by concerting together, they might succeed 
in fixing the relative prices of oxen and sheep on the basis of i to 
10, or on any other scale they might think fit. This occurs fre- 
quently enough in commercial speculations in the shape of com- 
binations between large dealers. 

No doubt, this conclusion must not be pushed so as to become 
absurd. It is evident that it would never be within the power of 
governments, even were they unanimous, to decree that the ratio 
between gold and silver shall henceforth be equaHty, or further, 
that it shall be reversed, and the kilogramme of silver be worth 
15I- kilogrammes of gold. Why would such a decree be a dead 
letter? Because the industrial use of the precious metals, though 
of less importance than their use as money, should, nevertheless, 
not be neglected, and would suffice to prevent the fixing of so 
extravagant a ratio as that just instanced. All the governments 
in the world would decree in vain that silver shall be worth as 
much as gold ; men and women will never pay the same price for 
a silver watch or ring as for a gold one. The price of gold would 
always remain far higher than that of silver in the market for pre- 
cious metals, and would therefore be much above its legal value. 
Thence would result the consequences of Gresham's Law, which 
are now so famiHar to us. 



PRODUCTION. 213 

Let us add that if, on the hypothesis, the value of gold were 
successfully maintained at the same level as that of silver, since 
the cost of production of gold is far higher than that of silver, the 
gold mines would soon be abandoned, on account of no longer 
giving any profit, and such a measure would finally result in the 
stoppage of all production of gold after a shorter or longer lapse 
of time. Similarly, if an ox were deemed to be worth no more 
than a sheep, and that basis of valuation were successfully imposed, 
we may take it as sure that no one would continue to breed oxen, 
and that after a certain time the very race of oxen would have 
disappeared. 

But within reasonable limits, we do not hesitate in believing 
that an international agreement would be efficacious in fixing the 
respective values of the two metals, and consequently in doing 
away with the chief disadvantage of bimetallism, the disappear- 
ance of one of the two moneys. For whither would it go, seeing 
that in every country it would be subjected to the same law? If 
at present gold tends to escape from France to England, that is 
because gold is worth more in England than in France ; in France 
it is worth only 15I- kilogrammes of silver, in England it is worth 
18 or 20 ; but, if in England, too, its worth was fixed by law to be 
no more than 15 J kilogrammes of silver, where would the ex- 
porter's profit come in ? If in France an ox could not be sold for 
more than one sheep, all oxen would assuredly be sold abroad ; 
but if abroad, too, they were treated exactly on the same footing, 
they would remain where they were. 



CHAPTER V. 



PAPER MONEY. 



I. Whether Metallic Money can be replaced by Paper 

Money. 

Were we not already aware that paper money can be substituted 
for metallic money, we might have some difficulty in believing it to 
be possible, and the title of this chapter might excite our wonder. 

It is obviously impossible to replace corn or coal or wealth of 
any other sort by mere pieces of paper, on which are engraved the 
words, "so many bushels of corn" or *'so many hundredweights 
of coal." From such paper we cannot obtain food or warmth. 

Were we to use coins to hang round our necks, just as Eastern 
women wear their gold or silver sequins, once again our scraps of 
paper would be useless. But money is not like other wealth ; 
there is no material element in its utility. A piece of money, a 
coin, is in fine nothing but an " order," which entitles us to claim 
by means of exchange a certain portion of existing wealth, or to 
pay our debts. That part can be played by a piece of paper just 
as well as by a fragment of metal. 

The matter will be clearer if we distinguish between three kinds 
of paper money. 

Firstly. Representative paper money merely represents an 
equal sum of coin, which is deposited somewhere, say in the cof- 
fers of a bank, and serves as a security for it. Thus, as the people 
of the United States are not enamored of silver dollars, the govern- 
ment of that country keeps these dollars in its coffers and store- 
rooms, and replaces them in circulation by silver certificates which, 
in virtue of being paper money, are much more handy to use. 
This first form of paper money presents no difficulties. 
214 



PRODUCTION. 215 

Secondly. Fiduciary paper money takes the shape of a credit 
paper, or, properly speaking, a promise to pay a certain sum of 
money. It is clear that the value of the document depends 
entirely upon the solvency of the debtor ; but, if perfect trust can 
be placed in this solvency, and, to use the business phrase, the 
signature is worth money, there is no reason why this strip of paper 
should not circulate as easily as metallic money. We shall see 
that bank notes usually fall under this head, though in certain 
respects and according to circumstances they may belong to the 
first or the third category. 

Thirdly. Conventional paper money represents nothing and 
gives a claim to nothing ; for that reason the term " paper money " in 
the strict sense of the word is usually confined to this kind, which 
generally consists of strips of paper which are issued by a State 
which has no coin. No doubt they are inscribed with the words, 
";^5 note, ^10 note," etc., and thus, like the preceding forms, 
they present the appearance of a promise to pay a certain sum of 
money. But that is known to be a pure fiction, and every one is 
aware that the government will never redeem them, for it has no 
money for that purpose. 

It is especially in this third form that the substitution of paper 
money for metallic money seems hard to understand, nor is the 
matter a simple one. Yet the experiment has often been made in 
all countries, and has proved that xmder certain conditions the 
substitution is possible, and that the public can fall in with the 
process well enough. This system has prevailed in Russia and 
the South American republics for several generations, and why 
not, indeed? If — in accordance both with law and with the gen- 
eral consent, which must always ratify to a certain extent the decla- 
ration of the lawgiver — these white or blue strips of paper are 
invested with the property of paying for our purchases, discharging 
our debts, and settling for our taxes, why should they not circulate 
just as well as white or yellow coins ? Coins serve us no other 
purpose than that. 

Yet in spite of this circulating faculty of paper money, we must 



2l6 PRINCIPLES OF POLITICAL ECONOMY. 

confess that between its value and that of metalHc money there 
will always be several important differences. The value of paper 
money will always be more precarious, more restricted, and more 
variable. 

Firstly. The value of paper is precarious^ for it rests entirely 
on the will of the legislator, and can be annihilated by the ver) 
law which has created it. If the law demonetizes paper money 
the holder will retain in his possession nothing but a worthless 
rag, for when it has lost its legal value it has lost all. The same 
does not altogether hold good of metallic money ; for besides its 
legal value it has also a natural value, which is due to the physical 
and chemical properties of the metal of which it is composed. 
No doubt, if gold and silver were demonetized in every country, 
metallic money would lose the greatest part of its value. We 
must not deceive ourselves as to this matter ; and the present fall 
in silver, caused by its demonetization in some countries, only too 
fully proves the fact. Yet many authors do harbor this illusion, 
or at any rate do not put their readers on their guard against it. 
Most of them seem to say that the government seal stamped upon 
gold and silver coins merely states their actual value, just as the 
tickets tradesmen put upon their goods. But the declaration that 
the six-gramme gold piece is worth twenty francs is not only 
declaratory, but is also determinative of value. It is because the 
will of the legislator, or, if it is preferred, the agreement of men, 
has chosen gold and silver as money, that these metals have 
acquired the larger part of their value ; and they would lose it as 
soon as this agreement or this law happened to cease to exist. 
Aristotle, too, had perceived this very clearly. Says he in the 
Nicomachean Ethics, Book V : "It was through a voluntary agree- 
ment that money became the instrument of exchange. It is 
called voixLo-fxa (from vofxos, law), because money is not a natural 
product, but exists only through law ; and it lies with us to change 
it and rob it of its utility as we will." 

Still we must remark that there was nothing arbitrary in men's 
choice falling upon the precious metals, for it was dictated by 



PRODUCTION. 217 

those very real qualities possessed by these metals, which we have 
already described. It is not then perfectly logical to argue on 
the opposite tack, as do some economists, notably M. Cernuschi, 
and to say that the value of the precious metals is purely con- 
ventional. For any object to acquire a recognized utiUty and 
value, in every case man's will and choice must intervene ; but if 
this will and this choice are determined by natural causes, the 
resulting value is also natural and by no means conventional. 
Corn itself owes its value to the fact that most civilized men have 
chosen as their staple food this cereal out of many others ; and, 
if ever they take another in its place, we may affirm that its value, 
too, will fall ; but no one will dream of saying that the value of 
corn is conventional. It is the same with the precious metals. 
The only difference is that it is far easier to replace the precious 
metals as money, or even to dispense with them, than it is to do 
without corn. 

Yet even on the hypothesis that demonetization would cause 
them to lose most of their value, the precious metals would still 
retain some utility, for the non-oxidizability of the precious metals 
would admirably "fit them for some industrial uses, to which they 
cannot now be turned because of the excessive cost ; and as such 
uses would become more important and more numerous in pro- 
portion to the fall in value of the metal, it is possible that this fall 
in value would not be so great as is believed. Let it descend 
to a third or a fourth of its present worth. The holder of coins 
would still possess a certain value that law could not deprive him 
of, — probably higher than that of any other commodity. 

Secondly. The value of paper money is more restricted, for, as 
it is conferred by law, it cannot extend beyond the limits of the 
territory regulated by that law. Of course a Bank of France note 
can be accepted abroad by a money-changer, or by any one who 
is acquainted with the Bank of France, and knows the worth of 
its signature. But in that case the note is received not as money, 
but as a bill — that is to say, with the intention of having it 
cashed — just as in all countries notes signed by Rothschild would 



2l8 PRINCIPLES OF POLITICAL ECONOMY. 

be accepted. Paper money, then, cannot serve to settle definitely 
the international exchanges. On the other hand, as the value of 
metalhc money is regulated by the metal, it is almost the same in 
all civilized countries ; it can therefore circulate ever}^here, if not 
as coined money, at least as bullion. That is why metallic money 
is essentially a universal and international money, whilst paper 
money is essentially national. 

Thirdly. Finally, the value of paper money is more variable 
than that of metallic money, and this for the most excellent reason 
that the quantity of paper money depends only on the will of the 
legislator, whilst that of metalhc money rests on natural causes ; 
namely, the discovery of fresh mines. The former, therefore, is 
issued by man, the latter by nature. It is in the power of a care- 
less legislator to depreciate paper money by issuing too large a 
quantity of it, and that power is too often exercised ; but no 
government on earth is able to depreciate metallic money in such 
a manner. Even if only a fixed quantity of paper money were 
issued, the disadvantage would subsist, for wants vary according 
to circumstances. If a period of commercial activity, which re- 
quires an increase in the instrument of exchange, is succeeded, as 
is usually the case, by a period of depression, paper money will 
necessarily be found to be in excessive quantity. 

It is true that the discovery of exceptionally rich mines may 
at a given moment throw upon the world a large quantity of the 
precious metals and thus effect a fall in the value of metallic 
money. It is also true that when a period of depression succeeds 
to a period of activity, the metallic money which has been attracted 
into a country may prove to be excessive in amount. The cir- 
cumstance has occurred more than once; but these variations 
never possess the magnitude or the fatal consequences that belong 
to and result from every variation in the quantity of paper money, 
for they extend over the whole surface of the civilized world. 
Everywhere in request, everywhere accepted, the precious metals, 
if in excess in one country, soon flow spontaneously into other 
countries ; whereas the sudden increases in paper money are dis- 



PRODUCTION. 219 

astrous, since they are always confined within the limits of a 
fixed country which serves as a closed reservoir whence they 
cannot flo^. 

The above disadvantages, which render paper money so imper- 
fect an instrument of exchange when compared with metallic 
money, are largely minimized when the government is a wise one 
and issues only that amount of paper money which is necessary 
for actual requirements and conforms to the rules set forth below. 
The disadvantages would almost entirely vanish, could we imagine 
an international agreement entered into by all civilized countries, 
by which they would all bind themselves : — 

Firstly. To confer legal tender on one and the same paper 
money ; 

Secondly. Not to augment its quantity, or only to augment it 
in a proportion fixed in advance and calculated for each country ; 
for example, according to the increase in its population. 

In that case, the value of paper money, though always conven- 
tional, yet resting as it would henceforward on the unanimous 
consent of the nations, would rest upon almost as broad and as 
sohd a basis as the value of metallic money itself, and would be 
less subject to vary, since its quantity, instead of depending on 
chance, would be regulated by a certain and fixed law. 

II. Whether the Creation of Paper Money is Equivalent to 
a Creation of Wealth. 

Who was the inventor of paper money? None can say. It 
was known in China from time immemorial. Antiquity has left 
to us several specimens of money, if not of paper, at any rate of 
leather, or of a purely conventional value, which were called siege 
money, because they had been generally issued in beleaguered 
cities to take the place of the metallic money which was growing 
scanty. Paper money was first issued on a large scale by the 
financier Law, in 1716 ; all the world knows the disastrous catas- 
trophe to which his system led. 



2'20 PRINCIPLES OF POLITICAL ECONOMY. 

The men, who first conceived the idea of making paper money, 
flattered themselves that by so doing they were increasing the 
general stock of wealth, just as if they had discovered a gold mine 
or had effected the magnu?n opus of the transmutation of metals 
into gold, which was so long the dream of alchemists. 

In this shape the idea was clearly absurd, for it presupposed 
the creation of wealth out of nothing. Still it has been ridiculed 
too much, for it is perfectly true that the emission of paper money 
may increase in a certain measure the existing quantity of wealth 
in a given country. But how? It was Adam Smith who first 
offered an explanation. He observes that the metalHc money 
which circulates in a country is unproductive capital, but that 
the substitution of paper money, by setting free this capital, per- 
mits of its being utiHzed and turned to productive purposes. In 
the same way he said, in a comparison that has become celebrated, 
if we found the means of travelling in the air, we could restore to 
cultivation and production all the surface of the ground which is 
now occupied by roads. 

Still this ingenious comparison of Adam Smith's leaves us not 
altogether satisfied. We can see clearly enough that from the 
time when roads and railways were no longer required, the ground 
they occupy might be cleared and thus put under cultivation and 
used for production (nearly a milUon acres in France alone) ; but 
it is not equally easy to see what could be done with metallic 
money from the time when it could be dispensed with for currency 
purposes. Should it be melted down to be made into gold or 
silver plate and earrings or pendants? The gain would be but 
scanty. No, it would be invested abroad ; there the advantage 
would come in. France has a capital of about ;^3 20,000,000 
worth of gold and silver currency. This enormous capital facili- 
tates its trade, but yields no profit. But suppose we find a means of 
replacing it by paper money ; then there are ^320,000,000 which 
can be invested abroad, in the purchase of foreign stock, of rail- 
way shares, landed estates, or ships, or be devoted to the renewing 
of its manufacturing or agricultural machinery and implements ; 



PRODUCTION. 221 

these, in one way or another, would give an interest of five or 
six per cent, i.e. an income of ;^i 5,000,000 or ^{^20,000,000. 
This might be Hkened to the case of a householder who, owning 
some scores of thousand pounds' worth of silver plate, comes to 
think that electro would serve him as well, and therefore realizes 
the capital stored in his silver plate for the purpose of increasing 
his income. The same is done by those well-informed persons of 
private means who, being well aware that money gives no returns 
whilst lying idle in their pocket or their strong-box, take care 
to keep no more in their houses than is absolutely necessary and 
invest all the rest. The wealthiest persons, especially in England, 
are often those who have least money at home. The peasant has 
a secret drawer in his cupboard full of napoleons and crowns, but 
the millionnaire pays his tradesman by giving him a check on his 
banker. Nations nowadays do the same ; it is not always the rich- 
est that have most money. Thus while France has 8,000,000,000 
francs in cash, England contents herself with ;£"i 20,000,000 : she 
has invested the rest.^ 

When, therefore, the question is asked, " Does it lie within the 
power of a government or a banker actually to augment the wealth 
of a country by the emission of paper money?" it is not perfectly 
correct to answer in the negative. As a matter of fact, the affair 
is feasible, but only tip to the total amount of metallic money in 
circulation. By replacing the 8,000,000,000 francs in coin that 
France holds by an equal sum in notes, the emission of paper 
money could actually increase the wealth of France by 8,000,- 
000,000 francs, or at any. rate by the largest part of that sum. 

But we must note that this gain would be realized only by some 
countries, not by all at once. One country can certainly produc- 
tively utilize its metallic stock by selling it abroad ; but if every 
country wished to do the same, it is evident that none of them 

1 *' Opinions differ as to the amount which is in circulation at this time, the 
estimates varying from 65 or 70 millions even up to 1 10 millions." Speech of 
Mr. G. J. Goschen, Chancellor of the Exchequer, at Leeds, on the 28th Janu- 
ary, 1891. — J. B. 



222 PRINCIPLES OF POLITICAL ECONOMY. 

would succeed. Gold and silver specie being offered by all coun- 
tries seeking to get rid of them, and being demanded by none, 
would become a drug on the market, and henceforward valueless. 
It is in this respect that Adam Smith's comparison fails in com- 
plete application. For, if the means of dispensing with roads 
were discovered, the result would be different ; all countries could 
equally and simultaneously benefit from the new utility they would 
derive from the ground heretofore devoted to means of communi- 
cation but henceforward available for productive use. 

Still, even on that highly improbable hypothesis, mankind would 
always find it to its advantage to do without the precious metals. 
For it would save henceforth all the labor that is yearly devoted 
to the keeping up of its supply of metals, to turning the bullion 
into specie, to filling up the void caused daily by wear and tear 
and by accidental loss, and especially to keeping up the supply 
at the level required by a trade and a population that are ever 
increasing. Is this labor a small matter? The annual produc- 
tion of gold and silver for some years past has stood at the figure 
of about ;;<^40,ooo,ooo.^ Now the precious metals fare like all 
other commodities ; when there is no monopoly their value is 
practically regulated by the amount of labor they require. There 
is therefore every reason to believe that the world, in order to 
maintain and increase its supply of metals, has yearly, whether the 
year be good or bad, to support something like four or five hun- 
dred thousand laborers, the equivalent of a large army. Do away 
with the necessity of using the precious metals, and all these arms 
will become available for new production. So much the greater 
will be the productive power of humanity. 

To sum up, we see that paper money increases the wealth of a 
country, not, as was formerly believed, in the proportion in which 
// adds to the stock of metallic money, but, on the contrary, in the 
proportion in which // allows of a diminution in that supply. 

1 For full particulars see the " Report from the Consuls of the United States 
on Bimetallism in Europe " and especially the translation (in Appendix) of 
Professor Soetbeer's paper on " Materials towards Elucidation of the Economic 
Conditions affecting the Precious Metals" (Washington, 1887). — J. B. 



PRODUCTION. 223 

Such is the advantage that a country obtains from the emission 
of paper money. If we are now asked what is the advantage 
obtained from such an emission by a government, the answer is 
far easier to understand. When a government falls short of money^ 
the creation of paper money is a very convenient means of pay- 
ing its contractors, its civil servants, its soldiers, and its stock- 
holders ; in a word, it is enabled to meet all its expenses without 
being obliged to borrow, and consequently without the necessity 
of paying interest. Usually, when a government is in such a posi- 
tion, its credit is not of the highest ; therefore, if it had to borrow, 
the rate of interest would probably be very high, and thus the 
use of paper money in such circumstances effects a saving which 
is by no means to be despised. Many States have had recourse 
to this expedient, and have in general come off well enough, with 
the provision, of course, that in their issues they do not exceed 
the limit we have laid down, which is represented by the amount 
of metallic money in circulation. The only result of every issue 
which exceeded this limit would be to lower prices, and to inflict 
on the country and on the government heavy losses, which would 
far more than counterbalance the saving to which we have just 
alluded. 

During the Franco- German War the French government had 
need of money, and issued notes to the value of ^60,000,000. 
If it had borrowed this sum, it would have had to pay six per cent, 
or ;^3, 600,000, a year. Now this issue cost only ^600,000 a 
year. Thus the direct issuing of this paper money, the cost of 
manufacture included, could have been effected without any actual 
outlay by the government ; but it chose, for other strong reasons, 
to use the services of the Bank of France at the payment of one 
per cent commission. In the country itself there was altogether 
an insufficient quantity of money in circulation, arising either from 
the exportation of money for foreign purchases, or from its being 
used in payment of the war indemnity, or more probably from its 
being hidden. Thus the emission of these notes, by re-establishing 
the medium of exchange, was a benefit for all ; nay, the amount 



224 PRINCIPLES OF POLITICAL ECONOMY. 

issued was actually not enough, for several loan societies were 
obliged to form themselves into a syndicate for the issue of 
fractional notes under five francs in value. 



III. The Dangers resulting from the Use of Paper Moneys 
and the Means of preventing them. 

Thus the advantages that paper money can obtain, either for 
a country or for a government, are real enough, but they may be 
paid for dearly ; indeed, may cost more than they are worth. Nay, 
some economists have actually gone so far as to say that the inven- 
tion of paper money " has caused more calamities, done jnore 
harm, and killed more men than war itself." 

Still it is advisable to remark that such grievous consequences 
are *due rather to the imprudence of governments than to the 
essential nature of paper money. Experience has shown that, 
when the emission of paper money is entrusted to banks, instead 
of being carried out directly by the government, it is usually 
effected with far more moderation, and offers far fewer dangers. 
At the present day, therefore, most governments have adopted this 
plan. See in the chapter on Credit the section on "The Differences 
between the Bank-note and Paper Money." 

Indeed, the ill effects of paper money are only produced when 
the government has chosen to overstep the Hmit we have marked 
out, and to issue it to an amount which exceeds the actual needs ; 
and these requirements are themselves excellently measured by 
the amount of metallic money habitually in circulation. But that 
government would be rash which ventured to the very margin of 
this Hmit. For example, the French government would be daring 
if it issued 8,000,000,000 francs of paper money, relying on the 
statistics that this is the actual sum of the metalHc currency of 
France ; for a certain amount of smaller change must always be 
left in circulation, were it only token money. Nevertheless, an 
involved government is sorely tempted to cross this fatal limit; 
many have done so, and have ended in bankruptcy. 



PRODUCTION. 225 

Every one knows the lamentable story of the assignats, which 
were issued by the Convention and the Directory, up to the extrav- 
agant figure of 40,000,000,000 francs which was probably twenty 
times higher than the amount of coined money then in existence. 
Even if the issue had consisted of good gold and silver pieces, it 
would, none the less, have induced a serious depreciation of 
metallic money, since the amount in circulation would have been 
twenty times larger than was required. We can therefore imagine 
what must have been the depreciation of a mere paper currency. 
The loo-franc assignat {€^ in value to a few halfpence, and a pair 
of boots was sold for twenty of them ; i.e. at a nominal price of 
4000 francs. The result was bankruptcy. 

We may affirm that in the present state of economic science 
there is literally no excuse for any government overstepping the 
limit ; for there are certain signs, familiar to the economist and to 
the financier, which betoken danger even when far off, and which 
give surer indications than the pilot can obtain from his sounding- 
lead or from his landmarks. 

Firstly. The first is the pre?ni7n?t on gold. As soon as paper 
money has been issued in too large a quantity, in relation to actual 
requirements, in accordance with the constant law of value it 
begins to be depreciated, and the first effect of this depreciation, 
its first indicating sign, though it is of itself not yet visible to the 
public, is that metallic money rises to a premium. For metaUic 
money is not touched by this incipient depreciation of the mone- 
tary system. Why should it be? for gold and silver still retain 
their former value. Bankers and money-changers begin to seek it 
for the purpose of sending it abroad in the form of bullion, and 
pay a small premium to obtain it. It is now that the financier 
should keep his eyes open. When at the close of the war of 1870 
France was under the paper money system, and all its gold went 
into Germany to pay the war indemnity, gold immediately rose 
to a premium of 2^ per cent (fifty centimes on a twenty-franc 
piece) . That was not a great rise, but it was enough to put the 
government on its guard, and the danger was averted. 



226 PRINCIPLES OF POLITICAL ECONOMY. 

Secondly. The second is the rise in the rate of exchange. Bills 
payable abroad, i.e. bills of exchange, occasion a great business 
movement in all the commercial centres of the world. They have 
a quoted price like any other commodity, which is just what is 
called the rate of exchange. Now these foreign bills are always 
payable in gold or in silver, more often in gold, since that is the 
international money. If then, for example, France is under the 
paper money system, and this paper begins to be depreciated, 
paper on London or on Brussels will rise in price just as gold 
itself, being in fact equivalent to gold ; when, therefore, the 
twenty-franc gold piece is at a premium of two per cent and is 
sold for 20 francs 40 centimes, the loo-franc bill of exchange 
on Brussels will rise to an equal premium and be sold for 
102 francs. 

Thirdly. The third is the flight of metallic money. However 
slight be the depreciation of paper money, unless this is imme- 
diately remedied by the withdrawal of the excessive paper, and 
if it is allowed to continue and become aggravated, all the metallic 
money will speedily disappear from the country. This phenome- 
non is a sure characteristic, and is produced in all countries 
where the paper money system has been used in excess. We 
explained the reasons for this when dealing with Gresham's Law, 
and need not repeat them here. 

Fourthly. Finally, the fourth sign is the rise i?i prices. This 
appears later on, and shows that the evil is already serious and 
that the allowable limit has been greatly exceeded. As long, 
indeed, as the depreciation of paper money is slight, say two or 
three per cent, prices (those of the precious metals excepted) are 
not affected. The hatter or the bootmaker will not raise the price 
of his goods for so trifling a difference, and even were he to do 
so, the public would not perceive it. But as soon as the depre- 
ciation of paper money reaches 10, 15, or 20 per cent, then all 
tradesmen and producers raise their prices in proportion. The 
evil, which till then had been in the latent state, suddenly bursts 
forth and fully displays itself to the pubUc gaze. 



PRODUCTION. 227 

Business men and producers are not disturbed by this rise in 
prices. The,y even find it highly agreeable, though in truth the 
pleasure is a deceptive one (for if they sell everything dearer, 
they have to pay more too), and even become so accustomed to 
it that they cHng to the paper money system and oppose its 
abolition, because that would result in a return to the old prices. 
When the United States were under the paper money system, 
there was a whole party, significantly called inflationists, who 
moved heaven and earth to maintain that system and even now 
clamor for a return to it. 

We must note that the old prices subsist for those who can pay 
in metalHc money, that is to say, if there is any of it left, for it has 
lost none of its value, but has gained. It is now possible to see 
the curious spectacle of a duplication of prices ; henceforth each 
commodity has two prices, one payable in metallic money, the 
other in paper money, and the difference between the two exactly 
measures the depreciation of the latter. Thus in Russia an article 
which is sold for eight roubles in paper needs only five or six 
roubles in silver, for paper there is depreciated to the extent of 
25 or 30 per cent. 

As soon, therefore, as a government perceives the premonitory 
signs, viz. a premium on gold or a rise in the rate of exchange, 
its first duty is to absolutely forbid any new issuing of paper money, 
for it has reached the point at which it must stop. If it has 
unfortunately overstepped that Hmit, and first beholds the appear- 
ance of the ominous symptom of duplication of prices, it must 
endeavor to retrace its steps and destroy all the paper money 
as it returns to the treasury, until it has been reduced to the due 
proportions. But such a heroic remedy, which involves the par- 
tial suppression of the national revenue, is not within the power 
of all governments. They cannot employ it unless they are in a 
position to do without a portion of their revenue, that is to say, 
they must have a surplus on their budgets. 



228 PRINCIPLES OF POLitlcAL ECONOMY. 

IV. How even Paper Money may be dispensed with. 

Though paper money has the effect of economizing metaUic 
money, still, that advantage, as we have seen, is only obtained at 
the price of serious disadvantages and even great dangers. If, 
then, it were possible to find some means of economizing metallic 
money, without having recourse to so dangerous an expedient, 
that, undoubtedly, would be highly beneficial. 

Now, such a means does exist, and it is both far more radical 
and far less harmful. It simply consists, not at all in replacing 
one costly instrument of exchange by another which costs nothing, 
but in doing away with every i7ist7'ument of exchange. The work- 
ing of this mechanism may be explained in the following way. 

Firstly, sales for cash on delivery — i.e. the exchange of com- 
modities for money — are replaced by sales for cash at a future 
date ; that is to say, by the exchange of a commodity for a prom- 
ise to pay, for it comes to nothing else. I deliver you my com- 
modity, and receive in exchange a promise to pay, represented by 
a note or by a bill of exchange. (For the understanding of this 
chapter the reader should refer to the chapter on Credit^ 

Secondly, once that these promises to pay have been made, we 
seek to satisfy them in some other way than by actual payment, 
i.e. than by the remittance of money in specie. Indeed, legal 
science affords us several means of attaining this end ; e.g. by 
compensatio, in virtue of which two promises to pay are extin- 
guished when two parties are mutually creditor and debtor, one 
to the other; or by confusio, when one party is at one and the 
same time creditor and debtor ; or by novatio, when one promise 
to pay is extinguished by the making of a new promise. 

The extreme complexity of social relations and the fact that 
each one of us, at any rate each producer, is in turn both buyer and 
seller, render far easier than could be imagined at the first glance, 
the employment of these different ways of extinguishing credit. 

It was in international trade, in exchange between country and 
country, that men first learned to turn to credit and to dispense 



PRODUCTION. 229 

with money. The difficulty and the dangers of carrying large 
quantities of specie for great distances inspired, perhaps the Lom- 
bards, or all and sundry, with the notion of the bill of exchange. 
Let us see how this result is reached in the practical working of 
actual business. 

Let us suppose that French merchants have sold to England 
wine to the value of ^4,000,000. They have sold it for cash 
at a future date ; i.e. instead of receiving the value in specie, 
they have drawn bills of exchange to the value of ;£"4,ooo,ooo 
upon their English debtors. Let us suppose, too, that English 
coal companies have, for their part, sold coal to the value of 
;^4,ooo,ooo to French manufacturers, and have drawn bills of 
exchange of equal value payable on France. When the French 
manufacturers wish to settle for their purchases, will they send 
over ^£4,000,000 in specie ? Certainly not ; they will merely 
transfer to the wine-sellers the ;,^4,ooo,ooo worth of bills payable 
in England. They will not find them difficult to obtain ; for, as 
we shall see, there is a certain class, called bankers, whose very 
business it is to trade in bills of exchange, i.e. to seek for 
paper payable abroad in order to hand it over to those who need 
it. The French manufacturers will then send over to their cred- 
itors, the coal companies, not the ^4,000,000 in specie, but the 
corresponding value in bills, saying, "obtain payment from your 
fellow-countrymen." They will do so ; and thus the absurdity will 
be avoided of sending two streams of cash across the Channel, in 
opposite directions. 

Our instance, it is true, supposes that there are two countries 
which are reciprocally debtor and creditor one to the other for a 
precisely equal sum — a not very likely hypothesis. But if it 
did not actually exist, the same result can be arrived at, though 
in a roundabout way. Let us grant that France has bought 
;£2,ooo,ooo worth of tea from China, but has sold her noth- 
ing. Compensation, in such a case, appears to be impossible. 
Would it not then be necessary for France to send these 
;^2 ,000,000 to China in specie ? Perhaps not, after all. Though 



230 PRINCIPLES OF POLITICAL ECONOMY. 

France has sold nothing to China, other countries in the world 
have, and are consequently her creditors. Then the French have 
nothing to do but to apply to these other countries, and obtain 
their bills. France is now herself a creditor of China, and noth- 
ing is more easy than to come to a balance with her. For 
example, it is possible that England has sold China ;^2,ooo,ooo 
worth of opium ; in that case France will have nothing to do 
but to obtain that bill (technically she has only to buy in London 
paper payable on Shanghai or Hong-Kong) . But it will be said, 
in any case France will have to pay ;j^2, 000,000. What does 
it matter whether it be to England or to China? It matters 
a great deal ; for it is only required that France herself should be 
England's creditor for ^^2, 000,000 (say for wine she has sold 
her), and the transactions between the three countries will be 
thus settled without untying a purse string. 

Without such ingenious combinations international trade would 
be totally impossible ; for, if France had to pay in coin each year 
for one hundred and sixty thousand million pounds' worth of im- 
ports, where could she get this enormous quantity of money ? She 
hardly possesses any more. In fact, the amount of coin which 
travels from country to country never represents more than a small 
fraction — 8 or 10 per cent at the most — of the value of the 
commodities exchanged. 

In home trade, in the relations between private persons, we 
are far less advanced. 

For the settlement of transactions between private persons, 
without having recourse to money, we can, in the first place, use 
the same system as between country and country ; i.e. sell for cash 
at a future date, create bills of exchange, and pass them from 
hand to hand, till they are finally extinguished by compensatio or 
confusio. For example, I am a lawyer, and one of my clients, 
who is a wine-merchant, owes me a sum of money. Instead of 
paying me, he accepts a bill in my favor. When I wish to settle 
my account with my bookseller, I can hand him this bill in pay- 
ment. If it happens that the bookseller gets his wine from the 



PRODUCTION. 231 

same wine -merchant, he in his turn will only have to hand this 
bill in payment. Here is a fuller illustration : In the same town 
let there be three persons, whom we will call A, B, and C. Let 
us suppose that A is a creditor of B's, B a creditor to the same 
amount of C's, and C in his turn a creditor of A's. This is shown 
in the following diagram : — 




Is it not clear that, instead of the sum of money owed by the 
three debtors respectively to their three creditors, having to pass 
through a complete circuit, it would be far simpler to settle the 
whole transaction without paying a farthing in cash? We may 
be told that it is highly improbable that C should be a creditor 
of A's, and should, as it were, be purposely placed where he is, in 
order to close the circle. No doubt it is improbable. But if C is 
not a creditor of A's, he will stand in that relation to D, E, F, G, 
H, etc., until we finally come to a man who in his turn is a creditor 
of A's, and then the problem is solved. The more persons there 
are in the operation, the better chance there will be of closing the 
circle. 

But we can conceive an infinitely more convenient and simple 
plan. Let us suppose that all Frenchmen, without exception, 
have opened an account at one and the same bank, which has the 
duty of keeping for each of its chents all their receipts, by placing 
them to their credit, and to settle for them all their payments, by 
putting these to their debit. 

By such an organization as this, we might dispense with the 
services of money, even to the last farthing. Every time I made 
a purchase, instead of paying the tradesman, I might confine 
myself to authorizing the bank to place the same to my debit and 



232 PRINCIPLES OF POLITICAL ECONOMY. 

to the tradesman's credit; the latter, in his turn, would do the 
same every time he m^de any purchases. If, instead of settling 
expenditure, I had to make an investment, it would be just the 
same ; the bank would enter to my debit the sum representing 
the value of the stock, and an equal value to the credit of the 
company which issued it, or of the former holder who has trans- 
ferred it to me. At the end of the year the bank would send 
each party his account, which would be closed (for the year) by 
a balance in favor either of the banker or the client. This bal- 
ance would be carried forward for the next year, to the chent's 
debit in the former, to his credit in the latter, case, and so forth. 
It is evident that, on this system, the sum total of all transactions 
could be theoretically settled by mere settlements on paper, by 
transfers of items, as they are called. 

This hypothesis, by the way, is virtually realized in England, 
where all the English of the wealthy classes deal with a banker, 
whose very business it is to perform this double operation on 
their account. It is true that they have not all the same banker ; 
but as all the prominent banks have a current account with the 
principal London banks, and as the latter, in their turn, have 
always an account open at the Bank of England, the situation is 
practically the same, though somewhat more complex. 

In practice, the matter is done in the following manner : Every 
time that an Enghshman has a payment to make to his trades- 
man, for example, he hands him a check, — that is to say, a bill 
on his banker. The tradesman does not take the trouble of going 
to cash the check, but sends it to his own banker. It comes 
to pass, then, that all the bankers in England are reciprocally 
debtors and creditors to one another for enormous sums. Their 
correspondents in London have only to communicate with one 
another and balance the accounts. They do this by meeting 
every day at the Clearing House, where they thus settle by means 
of simple compensatio transactions, which, of late years have 
amounted to the figure of ;^2 0,000,000 as a daily average, or 
more than ^6,000,000,000 a year. The New York Clearing 



PRODUCTION. 233 

House settles bills of still higher amounts, to the figure of about 
;^ 1 0,000,000,000. For the settlement of the differences on these 
large operations, the use of metaUic money is only needed in infin- 
itesimal proportions. 



V. How the Improvements in Exchange bring us back 

to Barter. 

The evolution we have just followed affords a most singular 
spectacle. It is clear that its tendency is, by altogether doing 
away with the instrument of exchange, to bring us back to the 
direct exchange of commodity for commodity, — in fine, to barter. 
These ingenious and complex procedures, which stand for the 
latest dicta of economic progress, curiously resemble the primitive 
methods of still barbarous societies. It is not the first time that 
the historical development of the nations has displayed this singu- 
lar course of the human mind, which first reaches the limit of its 
journey, and then appears to return almost to its point of depar- 
ture, having thus described one of those huge circles by which the 
imagination of Vico was so powerfully impressed. 

The present phenomenon is analogous to that which struck us 
when dealing with traders. We saw that social evolutiion first of 
all developed the class of traders whose function it was to facili- 
tate the relations between producers and consumers ; we then 
observed that this same evolution is nowadays tending to gradually 
eliminate this class of traders, and to return, by more simple and 
less costly methods, to the putting of producer and consumer into 
direct communication. 

International trade, in fact, is now actually carried on by barter ; 
for each country, to a greater or less extent, pays for its imports 
by its exports ; in other words, exchanges its products for foreign 
products. 

A kind of barter, too, would be returned to, on the hypothesis 
we have supposed, by which all the inhabitants of a country would 



234 PRINCIPLES OF POLITICAL ECONOMY. 

be clients of one and the same bank; for if no one had any 
further need of money, it would be because each man paid for the 
products or the services he might require by his own products or 
his own services. 

Once more, a species of barter is virtually in operation at that 
wonderful institution, the Clearing House ; for those huge bundles 
of checks, bills of exchange, and business papers, which are ex- 
changed and set against each other day by day, are nothing but 
the symbols of piles of chests, of bales, of casks, which have been 
exchanged as material goods. Thus, by those who are behind the 
scenes, the Clearing House is viewed in the light of a colossal 
bazaar, analogous to those held at Kashgar or at Timbuctoo. 
The only difference is that it is not the goods themselves which 
are exchanged, but the warrants which stand for them. 

VI. The Decadence of the Precious Metals. 

If, as is scarcely doubtful, the methods just studied are propa- 
gated and spread over the whole world, a day may come when 
men will no longer have need of coin to use in exchange, and the 
precious metals will prove to have lost nearly all their value. 

But will they not at least retain their value from the industrial 
point of view? That is not certain, for even in that quarter the 
high position they have held in the world might be gravely shaken. 
The more refined taste of the present day attaches httle value to 
the costliness of the material, and only appreciates finish in form 
and perfection of workmanship. Luxury, whether private or pub- 
lic, no longer dreams of covering its monuments with gold, after 
the fashion of Solomon, who hung three hundred bucklers of gold 
from the walls of the temple ; neither does it love to crowd its 
sideboards with massive gold and silver plate, as was the practice 
of our forefathers ; nor is it the custom to bedizen garments with 
embroidery and gold lace, as was done by the courtiers of Francis 
I. on the field of the Cloth of Gold, and as is still done by Eastern 
women, who wear their dowries round their necks. No ; it is the 



PRODUCTION. 235 

cheapest materials — wood, terra-cotta, earthenware, copper, at 
the most, bronze — that, when once fashioned by an artist's hand, 
adorn our |)alaces and our dwellings ; and as to dress, the latest 
decrees of fashion forbid men to wear jewelry set in gold. 

Thus, from whatever point of view we may look, the metals 
called "precious" seem to be on the eve of losing the epithet 
which has always been bestowed on them. A strange history 
theirs has been, and it may in the future serve to astound our 
descendants. How long their reign has been, and to all appear- 
ance how firmly estabhshed ! From being in the first rank of 
riches, they succeeded in becoming the very type of wealth — the 
only wealth that men coveted, the only wealth for which they 
contended. Alchemists, toiling over the mag7iicm opus of the 
transmutation of metals into gold ; emigrants, in the sixteenth cen- 
tury as in the nineteenth, streaming from their homes, to bring 
back from a fabled Eldorado a little of the coveted metal ; nego- 
tiations, treaties, battles waged on land and sea by nations warring 
for their colonial or their mercantile systems, — in such callings 
and by such means have men striven and struggled to obtain these 
precious metals. But now the attributes which raised them to 
their exalted station seem to be dropping off, one by one, Hke the 
jewels from off a diadem. Supplanted as instruments of exchange 
by the improvements effected in commerce and in credit, despised 
as articles of luxury by the fashion of our day, it may be that, after 
having been so long the very type of wealth, gold and silver are 
destined to be one day erased from the catalogue of riches ! 



CHAPTER VI, 
INTERNATIONAL TRADE. 

I. Why Exaggerated Importance is attached to Foreign 

Trade. 

Although international — that is to say, foreign — trade has 
attracted far more lively attention than home trade^ still it is much 
less important. The foreign trade of France, even when including 
only the "general" branch of it, never exceeds ^£"3 60,000,000 or 
^400,000,000 sterling, whereas the trade done at home, though 
much more difficult to calculate, cannot be less than ;^i, 600,000,- 
000 or ^2,000,000,000. The term "general trade " applies to the 
movement of all goods that enter or leave France, whereas " special 
trade " refers only to the movement of those goods which have 
either been produced at home or are destined for home con- 
sumption. Thus the latter term comprises neither goods in transit 
nor goods for re-exportation. The total sum of the wealth pro- 
duced in France cannot be reckoned at less than ^800,000,000 ; 
but as each article passes through at least two or three different 
hands before reaching the consumer, the movement of the ex- 
changes occasioned by this production must be valued at twice or 
three times that sum. 

The proportion between foreign and home trade varies for each 
country, according to its position, its extent, and its own resources. 
We may even say that, in a general way, the proportion of the 
foreign tends to increase, inasmuch as the facility of communi- 
cation better and better enables each country to secure foreign 
products from far off, and likewise to send its own products to 
distant lands. 
236 



PkODUCtlON. ^37 

Nevertheless, it still remains true that, for a great country, com- 
merce with other countries plays only a moderate part in the 
general movements of its trade. In this point, the position of a 
country differs from that of individuals ; in our modern societies, 
division of occupations has been pushed to its furthest hmits, so 
that each of us, as already shown, scarcely produces anything at all 
save on behalf of his neighbors, and hardly consumes aught but 
what has been produced by his neighbors. Thus all he produces 
and all he consumes must undergo the operation of exchange. It 
is not the same when we deal with a country, especially a great 
country. If we wish to compare it with a private person, it should 
be likened to a landed proprietor residing on his own estate, who, 
himself producing the greater part of what he consumes, needs 
only buy from outside his land what he does not produce himself, 
and consuming, too, most of what he produces, needs only sell to 
others the surplus of his crops. This remark is not a needless 
one, for as we shall see, when studying the protectionist system, 
popular opinion tends to conceive a country in the shape of a 
trader, who does nothing but buy and sell. 

II. Why International Trade always tends to take the 

Shape of Barter. 

One more difference must be noted between international trade 
and exchange between individuals : the former is almost exclu- 
sively effected by means of barter, commodities being given for 
commodities, and money intervenes in very slight measure. If we 
take from the custom-house statistics the entries and goings of coin 
and bullion and compare them with the whole sum of exports 
and imports, we see that hard money scarcely ever stands for more 
than 7 or 8 per cent. The following are the French figures for 
the last three years, in millions of francs : — 

Coin and 
Years. Goods. Bullion. 

1887 7272 668 

1888 7354 567 

1889 8020 68i 



238 PRINCIPLES OF POLITICAL ECONOMY. 

[Moreover, from the figures in the column relating to Coin and 
Bullion, we ought to deduct a quarter or a third, which is in the 
form of bullion, is destined for industrial purposes, and is thus a 
real commodity.] This circumstance is specially worthy of note ; 
for, as we shall see when treating of the protectionist system, men 
are tempted to believe that a country, just like a private person, 
must pay in money for all it buys, and receive in money the total 
sum of all it sells. That is altogether incorrect ; exchange between 
countries is effected like exchange between savages, — one product 
for another, on the principle of do ui des, though, of course, all due 
reserve should be made for possible improvements in the methods 
employed. 

The following are the reasons for this apparently singular cir- 
cumstance : — 

First of all, had international exchanges to be settled by specie, 
an amount of coin would be required which would be out of all 
proportions to that at the disposal of any particular country. 
England has in circulation not more than ;^ 120,000,000 or 
^160,000,000, and this she absolutely needs for her home circu- 
lation ; how, then, could she face an importation which yearly 
reaches something like the figure of ^^400,000,000 ? Even France, 
which of all the countries in the world is the best provided with 
money (we know that it is reckoned to be about ;^3 20,000,000), 
would be sorely pressed to settle in money all her foreign pur- 
chases, which usually exceed ^160,000,000 a year. 

Further, even were we to admit that, by a most improbable 
combination of circumstances, a country could succeed in always 
giving money and in always receiving it, in any case such an 
abnormal position could not be maintained for long. The very 
force of circumstances would speedily overturn it, only to replace 
it by a diametrically opposite position. 

Let us suppose that France always demands and receives money 
in exchange for her exported goods. On this hypothesis, she 
would have to receive, in round numbers, from abroad about 
;,^i 20,000,000 each year. In less than three years, then, the 



PRODUCTION. 239 

amount of money in circulation in France would be doubled, and 
in ten years quadrupled. Then the prices of all articles would also 
be doubled or quadrupled. On the other hand, in foreign coun- 
tries, which would be robbed of their money for the benefit of the 
French, prices would constantly fall. Now, on such conditions, it 
may be taken as certain that the current of exportation would 
speedily stop ; for we rarely see commodities go from places where 
they are dear to where they are cheap, any more than we behold 
rivers flowing back to their sources. Therefore a counter-current 
of irresistible force will be set up, which will bear foreign goods 
into France. For whilst the rise in prices in France will compel 
foreigners to discontinue their purchases, that very rise in prices, 
coinciding with the fall in prices abroad, will induce many French- 
men to make their purchases in other countries. 

Again, the currency of a country has not usually circulating 
power in other countries ; it must therefore be reminted. In any 
case, it must be transported, and consequently must be insured 
against risk. All this means difficulties and expenses which will 
doubtless tend to diminish in consequence of the facilities of com- 
munication, but none the less they are difficulties and expenses. 

Thus it was that several centuries ago business men, and in 
particular the races who possessed the true commercial genius, 
namely the Jews and the Lombards, taxed their ingenuity to 
discover means of settling the exchanges between different coun- 
tries without sending coin ; and they invented admirable instru- 
ments of credit which perfectly fulfil the desired conditions. 

Thus every time that a country sends goods abroad, it must 
expect to receive in return from abroad goods of an equal value ; 
and if by prohibitive measures it renders this payment in kind 
impossible, it must look forward to the current of its exportations 
being dried up in consequence of those very measures. We may 
therefore formulate this general law of international trade, " every 
exportation, when it takes the shape of a regular current, neces- 
sarily provokes and determines a corresponding importation." 



240 PRINCIPLES 01^ POLITICAL ECONOMY. 

But the converse of the law equally holds good : every importa- 
tion, too, provided that it be repeated and regular, provokes and 
determines a corresponding exportation. In fact, a purchasing 
country cannot always pay in money (unless it produces one of 
these precious metals in its own mines, in which case that precious 
metal becomes an article to export, just hke any other com- 
modity) . From the moment that it has no more money, it will 
be obliged, if the importation still continues, to pay for it in goods ; 
however, long before that moment has been reached, the fall in 
prices would have stopped purchases made abroad by its subjects 
and would have induced foreigners to come and buy from it. It 
is the same reasoning as above, with the parts reversed. The 
current of money, then, will never persist in flowing in the same 
direction ; like a tide of the sea it will sooner or later turn, and 
after having borne money away, will change and bring it back. 

To reverse the current, a variation in prices will not always be 
necessary ; a mere variation in the rate of exchange, which gener- 
ally passes entirely unperceived by the public, will usually be suffi- 
cient to induce the turn. (See below, ^'The Rate of Exchange.") 

Every-day experience confirms this law. A country has never 
been despoiled of its money by the working of its international 
trade, whereas many have suffered thus from the working of 
Gresham's Law. On the other hand, each time that a treaty of 
commerce or any other cause has considerably increased a coun- 
try's imports, its exports have never failed to increase in like 
proportions. Thus when in i860 France threw open her ports to 
foreign products, her imports rose from 2,521,000,000 francs (the 
average of the five years 185 5-1 860) to 3,231,000,000 (the 
average of the five years 1 861-1865) ; but her exports likewise 
rose in equal proportion, between the one period and the other, 
from 2,813,000,000 to 3,449,000,000. Thus the increase in im- 
ports was 23 per cent, in exports, 28 per cent. 



PRODUCTION. 241 

III. What is meant by the Balance of Trade. 

Since all International trade tends to take the shape of barter, 
we seem to be justified in drawing the conclusion that in the trade 
of any country exports and imports should almost exactly balance. 
Such, however, is not the case ; if we study the statistics of 
exports and imports, which in nearly all countries are drawn up 
with sufficient accuracy, we see that this equality scarcely ever 
exists. The balance of trade (that is the orthodox phrase) leans 
sometimes to the side of imports and sometimes to that of ex- 
ports, the former being the most frequent. 

Let us take France as an example. Here are the figures of her 
trade {special trade) ^ for the last five years, in millions of francs. 

Years. Imports. Exports. 

1885 4088 3088 

1886 4208 3249 

1887 4026 3246 

1888 4107 3247 

1889 4316 3704 

Totals 20745 16534 

The above figures show that during a period of only five years 
France bought from abroad 4,000,000,000 francs' worth of goods 
more than she sold j in other words, the annual excess of imports 
over exports was more than 800,000,000 francs (^£"3 2,000,000 
sterling) . 

Does this contradict the law we have just laid down ? Is France 
obliged to pay out ;2^3 2,000,000 of money or so every year? That 
is not probable, for the most superficial observation shows that 
the quantity of money in circulation does not appear to have 
appreciably diminished. Nay, more ; it has increased. For the 
custom house, besides registering the exports and imports of 
goods, also enters the comings and goings of the precious metals. 
No doubt these custom-house records are not perfectly accurate, 

^ i.e. not including re-exported imports, but only imports retained for home 
consumption. — J. B. 



242 PRINCIPLES OF POLITICAL ECONOMY. 

for they do not reckon, for instance, the money which travellers 
carry on their persons. But as the omissions must be practically 
the same for comings and goings, the relation between the two 
columns should not be sensibly altered. 

Here are the figures relating to the precious metals, for the 
same period of years, in millions of francs : — 

Years. Comings. Goings. 

1885 479 339 

1886 445 333 

1887 271 397 

1888 266 301 

1889 448 233 

Totals . 1909 1603 

Thus, during the same period, the metallic stock of France has 
increased by 300,000,000 of francs — an average of 60,000,000 
francs a year. 

Were we to take England, the figures would be still more sur- 
prising. The annual excess of imports over exports reaches, on 
an average, the sum of ;2^i 60,000,000 ; in other words, one year 
would be enough to drain England of her money, down to the 
last penny, for her cash does not exceed that figure. But such 
does not occur. On the contrary, just as in France, the comings 
of money usually exceed the goings. 

What, then, is the key to the enigma ? Only this : To tell 
whether the foreign trade of a country is in equilibrium, we must 
not only consider the balance of its imports and exports, as we 
supposed in the preceding chapter, but we must study the balance 
of what is due to it and due by it. The balance of accounts now 
will not be the same as the balance of trade, for though expor- 
tation is one way and the chief way of putting the foreigner in 
our debt, still there are others. Similarly, though imports con- 
stitute a debt which the country owes to foreigners, it is not the 
only one. What, then, are these international claims or debts, 
which are distinct from exports and imports? There are many 
of them, but three stand out prominently. 



PRODUCTION. 243 

Firstly, the cost of transport of exported goods ; that is to 
say, freight and insurance. If the exporting country itself carries 
its own goods, it then holds a claim on other countries, which 
certainly will not be counted among the exports, for it only arises 
after the commodity has left the home port, and is on the way to 
i:3 destination. Under this head a country like England has an 
enormous claim on other countries, which is reckoned to amount 
to ^48,000,000 sterling ; ^ for not only does she carry all her own 
goods, but she also carries the greatest part of the goods of other 
countries, and naturally does not do this for nothing. France, on 
the other hand, incurs a debt under this head, for in her own 
ships she scarcely carries more than half her exports and a third 
of her imports. 

This excess which the cost of carriage places on the value of 
goods explains the following fact, which at first sight appears to be 
inexplicable. If we sum up the total of the exports and of the 
imports of all the countries of the world, we find a considerable 
excess of imports over exports. Thus, during the last few years, 
the total value of the imports of the world is reckoned to be 
;jri, 7 20,000,000 or ;j^i, 760,000,000 sterHng, whereas the total 
value of exports would not exceed ^1,520,000,000 or ;^i,56o,- 
000,000. Now if, instead of comparing the values of the entering 
and leaving goods, we compared their quantities, it is clear that 
the two amounts would be equal ; for obviously, through the length 
and breadth of the world, there could not be more imported than 
exported goods, unless, forsooth, they bred on the way. As, on 
the contrary, there are some that are left on the journey, in con- 
sequence of shipwrecks, it is clear that the goods which arrive 
should be of slightly smaller amount than those which are sent. 
But as, instead of considering quantities, we consider values, and 
as these values are heightened on the way, just because of the 
cost of conveyance, it is not surprising that the imported goods, 

1 Sir T. H. Farrer says ^50,000,000 (^Free Trade versus Fair Trade, 
4th edition, 1887, 1. 7 of p. 122). These, as Mr. Giffen says, are the "invisi- 
ble exports." — J. B. 



244 PRINCIPLES OF POLITICAL ECONOMY. 

that is to say, those that reach their destination, stand for a higher 
value than the exported goods, that is to say, those reckoned from 
their starting points. 

Secondly, the intei^est on capital invested abroad. Rich coun- 
tries invest abroad a large part of their savings, and for this reason 
draw from abroad annually very considerable sums in the shape 
of stock coupons, shares, and debentures, or even in the form of 
farm rents or profits on industrial or commercial undertakings. 
;^8o,ooo,ooo sterling is reckoned to be the amount of the 
tribute that England levies under this head from foreign countries 
or from her own colonies. Not only have India and the Aus- 
tralian colonies negotiated almost the sum total of their loans on 
the London Exchange, but how innumerable are the businesses 
that Englishmen direct or command all over the world ! In the 
United States they are said to have acquired lands whose area is 
estimated to be 20,000,000 acres, — the area of Ireland. France, 
too, has considerable claims abroad, chiefly in Europe. The 
interest accruing from them cannot be much less than ^40,000,- 
000 a year. 

Spain, Turkey, India, Egypt, the South American Republics, on 
the other hand, figure as debtors under this item. But it should 
be observed that when these countries issue a loan, and so long as 
this loan is not fully subscribed, they become for the time credi- 
tors of the countries who are sending them funds. 

Thirdly, the expenses iiicii7'7-ed by foreigners living in the par- 
ticular country. As the money spent by these strangers is not the 
product of their labor, but is drawn from their estates or from 
capital invested in their native land, all countries which are resorted 
to by wealthy foreigners receive a constant current of claims. 
In this respect France, Italy, Switzerland, Algeria, are creditors 
for considerable amounts of England, Russia, and the United 
States. Let there be in Paris a floating population of 50,000 
foreigners, spending only a pound a day ; to pay their expenses 
they must draw from the country of their origin an annual sum of 
^^18,250,000. It is like a bill for their boarding expenses. (See 



PRODUCTION. 245 

farther on, "The Expenditure of Foreigners.") In all France 
there are reckoned to be more than 1,100,000 foreigners, but 
naturally an enormous majority of them come only to gain money, 
not to Hve on their incomes. It is only the latter that we are 
wjw speaking of. 

Some other kinds of claims and debts might still be mentioned ; 
for example : — 

Firstly, bankers' commissions, when they extend their opera- 
tions abroad. Exchanges, like that of London, and even the Paris 
Bourse, receive orders and execute operations for all countries. 
As this is not done gratuitously, they are creditors under this head 
for considerable sums. 

Secondly, the sale of vessels. Ships bought do not figure on the 
custom-house books, either as exports or imports. Now England, 
who builds ships for the whole world, in this item, too, is a credi- 
tor for a rather large amount, and so the sum due to France, also, 
though much smaller, is by no means to be neglected. 

Still we must be careful not to reckon in these claims the profits 
of exporters. For these profits are already included in the value 
of the exports, since this value is fixed by a commission called 
the commission on values, according to the selhng prices entered 
on the invoices. 

The three classes first referred to are the principal claims. 
They are enough to restore the balance and to explain our enigma 
of a page or two back. Take the case of France : if we enter to 
her credit in the first place ;£" 120,000,000 of exports, then 
^40,000,000 interest on capital invested abroad, and lastly 
;2{^ 1 8,000,000 of expenses incurred by foreigners ; and if we enter 
t3 her debit, firstly, ^160,000,000 of imports, and then a few 
score of milHons for the transport of the portion of these goods 
that sail under a foreign flag, we shall see that the desired equi- 
librium is virtually found and that there is even a slight balance 
to France's credit. The same calculation could be gone through 
in the case of England. 

The foreign trade of a country, then, is in equilibrium, not 



246 PRINCIPLES OF POLITICAL ECONOMY. 

precisely when there is equahty between its exports and its im- 
ports, for that never happens, but when there is equahty between 
its claims and its debts. ^ 

If this equilibrium is disturbed, it tends to be restored through 
the working of that law we studied in the preceding chapter. 
Just as we declared that every new exportation of goods induced 
a countercurrent of imports, so too, we must say that " every 
new claim on a foreign country tends to cause importation from 
that country." Again, just as each regular importation causes a 
corresponding flow of exports, so, too, " every debt contracted with 
a foreign country tends to cause a flow of exports into that country." 

The reasons for these phenomena — to wit, variations in prices 
or merely in the rate of exchange — are absolutely identical with 
those which tend to reverse the proportion between exports and 
imports. 

IV. Wherein lie the Advantages of International Trade. 

In international just as in all other exchange an equal value is 
given for an equal value. Where, then, is the advantage of ex- 
change? The advantage is exactly that which we pointed out 
when studying exchange between individuals. Why, indeed, 
should it be different ? for it rests merely in an economy of labor. 

Let us suppose that in France the production of a hundred 
weight of com requires six days' labor, whilst in America it 
requires only three ; in that case, France, instead of directly pro- 
ducing her own corn, will find it to her advantage to obtain for 
herself American corn, by giving in exchange an equivalent value, 
that is to say, an article which will have cost her, too, only three 
days' labor ; in this manner, she will economize three days' labor 
for every hundredweight imported. In other words, she will 
obtain the same satisfaction as previously for half the effort. In 
this, as we have already seen, lies the essential advantage of 

1 The various items in the reckoning are given in Mr. Goschen's book on 
The Foreign Exchanges (first published in 1861). — J. B. 



PRODUCTION. 247 

all exchange. It is not otherwise with international trade or 
exchange. 

Now, this' advantage arising from international trade does not 
necessarily imply any inferiority in production of the importing 
country, though that is most usually the case. It may be to a 
country's interests to obtain certain goods by importation, even 
though it may be capable of producing them under more favorable 
conditions than other countries can. This, at first sight, appears 
to be a singular circumstance ; yet it occurs frequently enough. 
Let us suppose that the Antilles could produce corn under more 
favorable conditions than France can, — say a hundredweight in 
three days instead of six, — would it not seem to be to their clear 
advantage to produce their corn directly, and that it would be 
foolish to import it from France ? Yet it is very possible that the 
Antilles profit by the transaction. That would occur if we were 
only to suppose that they are able to pay for the corn they 
obtain from France by a product they can produce under still 
more favorable conditions than they can corn, — say by sugar, 
which will cost only one day's labor. This transaction will evi- 
dently be extremely advantageous to them, for it will give them 
the same quantity of corn for a third of the labor. 

A country, then, might be superior to its neighbors on all points, 
and yet find it to its interest to import their products. Even in 
that case, it would find it best to devote itself to the production 
of articles in which its superiority is the most marked, and to offer 
them to its less favored neighbors, so as to obtain in exchange 
products in which its superiority, though actual enough, is less 
clearly marked. 

It is obvious that the advantages just referred to may well 
enough be reciprocal, and indeed ought to be so, other things 
being equal. For in every exchange, each party only agrees to 
the exchange in so far as he knows or believes that he will obtain 
some advantage in so doing, i.e. that he will either be saved a 
certain amount of labor, or will obtain an article which is useful to 
him in exchange for one which is relatively useless. But though 



248 PRINCIPLES OF POLITICAL ECONOMY. 

we can hold it for certain that each party reaps some advantage 
from the change, we are by no means justified in affirming that 
the respective advantage gained on each side is equal; that is 
scarcely probable. 

No one would dream of denying the above advantages, were 
international trade seen by all eyes in its true light ; that is to say, 
as barter, commodity for commodity. No one, then, would hesi- 
tate in agreeing that it is in importation rather than in exporta- 
tion, in the article received rather than in the article yielded up, 
that the real advantage of international trade must be sought. 
For in the exchange of objects in their actual physical state, does 
not each party consider the object to be acquired as the real aim 
of the operation, and the object given up as a mere means of 
acquiring ? 

Unfortunately, to the vulgar eye international trade is not seen 
in its true shape of barter ; people only see sales made abroad on 
the one hand, and purchases made abroad on the other hand, and 
never dream of establishing any inevitable connection between 
the two classes of transactions. From this blindness arise most of 
the difficulties that beset this question. 

V. Why the Advantages of International Trade should be 
measured neither by the Excess in Imports nor by 
the Excess in Exports. 

Such being the advantages of international trade, we must be- 
ware of the common error of desiring to measure the profits of 
international trade, either by the excess of exports over imports, 
which is the protectionist theory, or by the excess of imports over 
exports, which is the free-trade theory. Both these ways of valu- 
ing the advantages of international trade rest alike on an analogy 
which we have shown to be inaccurate, namely, the likening of the 
position of a great country to that of a business man. 

According to the first theory, here is a London merchant who 
buys tea in China, to sell it again in France ; the tea he imports 



PRODUCTION. 249 

is valued at ;2r4ooo ; the same tea, when exported, is valued at 
£6000. His profits, then, are measured by the excess of the 
selling price' over the cost price, therefore by the superiority of 
exportation to importation. 

According to the second theory, here is a London merchant 
who sends to the Gold Coast a general cargo of goods, which are 
worth ;,^4ooo. These he exchanges there for a cargo of ivory and 
gold dust, which on reaching London is worth ;^20,ooo ; his 
profits are measured by the excess in value of the imported over 
the exported goods ; therefore by the superiority of importation to 
exportation. 

Both of these conclusions are based on the particular circum- 
stances to which they apply, and are alike false when an attempt 
is made to generalize them and to extend them to the whole 
trade of a country. For a great country is not a trader ; it has 
other functions besides buying to sell again, or selling to buy 
again. No doubt these various operations might be sources of 
profit for certain classes of business men and consequently for the 
nations of which they form a portion ; and they have been prac- 
tised on a large scale by Tyre and Carthage in old days^ by the 
Hanse towns and the Netherland cities in the Middle Ages, and 
by England in our own day. But for a great country viewed as 
a whole, the object of trade is not to make money, but to satisfy 
those of its wants that it cannot satisfy directly. If it is to be 
compared with a private person, it should be likened, as we 
have shown, to a landowner, who does not buy to sell again or sell 
to buy again, but who buys what he needs for consumption, and 
sells his surplus stock. 

If we take the case of France, the fact that her purchases 
amount to about ^160,000,000, while what she sells scarcely 
reach the figure of ;£i 20,000,000, by no means justifies us in 
concluding that she has gained this difference of ;£'40,ooo,ooo, 
nor less still that she has lost it. Similarly, when we see the 
United States exporting yearly ^28,000,000 or ;^30,ooo,ooo 
worth of goods more than they import, we must not conclude that 



250 PRINCIPLES OF POLITICAL ECONOMY. 

they have gained this sum, far less that they have lost it. In real- 
ity, as we have seen above, in exchange for these ;^i 60,000,000 
worth of goods France has given ^120,000,000 worth of goods, 
besides another ;^40,ooo,ooo represented by bills that she holds 
abroad. Thus she has given equal value for equal value ; in the 
drawing of the balance-sheet of these transactions we must not 
attempt to find either a loss or a gain that can be valued in figures, 
but we must look to the far more important economic advantages 
which we have referred to in the preceding section. 

What an extraordinary idea it is to measure the benefits of 
exchange and of trade, whether between countries or between 
private persons, by the profits of business men ! People fail to 
observe that the profits business men draw from these transactions 
are, in fact, a charge both for producers and for consumers, a 
legitimate charge when it corresponds to a service rendered, but 
which, nevertheless, must be deducted from the advantages of 
exchange. Did business men make no profits at all, exchange 
would be none the less beneficial ; nay, it would be even more so. 
No doubt, under present circumstances such a state of things 
would be impossible, but that is quite another question. As 
Cairnes has admirably said, " It would be just as reasonable to 
represent the advantages of learning as measured by the salaries 
of teachers." — Leading Principles, III, v, page 502. 

VI. How it happens that International Trade necessarily 
harms Certain Interests. 

It must not be inferred from the above discussion that inter- 
national trade is beneficial to every one. That would be to mis- 
understand its effects. It follows, indeed, from our explanation 
of the effects of international trade that the aim and result of this 
method of exchange are to economize a certain amount of labor. 
But given our present societies which are based on division of 
labor, and it will be seen that a certain quantity of labor cannot 
be economized without rendering useless a certaifi class of laborers 



PRODUCTION. 251 

(see below, " The Disadvantages necessarily involved in All Progress 
in Productpn ") . The China trade is an advantage for French con- 
sumers and for the country in general, since it enables them to obtain 
silks at a smaller cost and for less labor, but the mulberry-tree grow- 
ers and silk spinners of the Cevennes, who used to earn their liveli- 
hood by this industry, are to some extent becoming expropriated. 

It is true enough, as we showed in a recent section, that every 
new importation induces a corresponding counter-current of ex- 
portation, and that Chinese silk, for example, will be paid for with 
Parisian articles, which must be produced for that purpose. But 
we must not forget that silks imported from China obviously stand 
for a lower value than the French silks, which they have replaced 
as articles of consumption ; were not that the case, they could 
not have supplanted them in the market. Say that the value of 
China silk imported is only ;2^ 1,000,000, whilst the products of 
French silk- worm culture were at least ^1,600,000. To balance 
this flow of imports by an equivalent counter-current of exports, it 
will be enough for Parisian industry to send to China ;£"i, 000,000 
worth of Parisian articles. The final result, therefore, is a diminu- 
tion of home production by ^^600,000, and a corresponding dimi- 
nution in labor. 

Were no other effect produced than a displacement of labor, 
for that is obvious, none the less, grave injury would be done to 
certain classes of the people. For the silk manufacturers of the 
Cevennes, being unable to turn their spinning- mills into manu- 
factories of Paris goods, will have to lose all the capital they have 
sunk in their works ; and as the spinners whom they employ will 
be equally unable to go and make knick-knacks for the Chinese, 
it is not certain whether they will find another trade. Thus the 
employers are ruined, the employed are thrown out of work and 
plunged into poverty. 

A few attenuating circumstances can be set on the other side. 
We may say that international trade, just as machinery, will be 
able, by its indirect consequences, to increase the amount of labor 
which it had begun by diminishing. This will be effected in twcj 
different ways. 



252 PRINCIPLES OF POLITICAL ECONOMY. 

Firstly. Because the lowering of prices resulting in Free Trade 
will bring along with it an increase in consumption, and conse- 
quently an increase in production. Thus the fall in the price of 
silks will increase the consumption of them. Even admitting that 
this increased demand will affect only Chinese, and not French, 
silks, nevertheless, to pay for this larger bulk of imports, there 
must be a corresponding increase in the amount of exported 
Paris goods, the value of which will be not merely ;^ 1,000,000, as 
in the previous case, but perhaps even ^1,600,000 (the value 
of the French silk industry) . 

Secondly. Because the lowering of prices, by diminishing the 
expenditure of consumers of any particular article, may enable 
them to lay out the resulting saving in other expenditure, or 
perhaps to invest it. Consequently all that is taken away from 
labor by one road may, by another road, in the shape of savings 
or new expenditure, go to feed other branches of industry ; and 
it is possible that in the long run the national labor may not have 
been diminished at all. 



THE QUESTION OF FREE TRADE AND PROTECTION. 

I. Why the Question of Free Trade h a Question. 

There is no subject in political economy, hardly, perhaps, in 
any sphere, which has stirred up more controversies, caused the 
writing of more volumes, nay, even occasioned the firing of more 
cannon-balls, than the question of international trade. 

But why? Is not the trade between country and country simi- 
lar on all points to trade between individual and individual? Is 
it not, like private trade, an ordinary and normal form of exchange ? 
What, then, is the use of a special theory for international trade? 
If exchange is in itself a good thing, how comes it that it may 
present certain dangers in consequence of the wholly extrinsic 
circumstance that the two exchangers are separated one from 
the other by the flag-post that marks a frontier? 



PRODUCTION. 253 

That is how political economy regards the matter. It does not 
admit and does not understand that international trade can be 
subject to other rules than those which rule each particular branch 
of trade. For political economy the celebrated question enun- 
ciated above is not a question at all, and ought to be struck out 
from the Hst of our subjects of study. Exchange is a form of 
that division of labor, the wonderful effects of which we have 
already explained, and its utility is absolutely independent of the 
circumstance whether the exchangers belong to the same country 
or to different countries. Political economy was still in its first 
youth, under the fostering care of the physiocrats and of Adam 
Smith, when it uttered the formula, ^^ Laissezfaire, laissez passer^\- 
that is to say, its first cry was a free-trade declaration. And since 
then, in spite of a few hesitations, and even some expressions of 
dissent, it may be said to have remained faithful to its old motto. 

But political economy has not succeeded in convincing either 
legislators or peoples. At one time (about thirty years ago) its 
cause appeared to have been won. England had then adopted 
free-trade opinions, and France, following her lead, had drawn 
successively into the same path nearly all the European nations. 
But that conversion, which seemed to be a final one, was of but 
short duration. The reaction was as sudden as it was violent, 
and at the present day, of all the countries of the civihzed world, 
there are only two, England and Belgium, which have remained 
faithful to Free Trade. -^ 

This question, in truth, is of old standing; yet it was scarcely 
till the seventeenth century that controversies over it began to 
rage. It is obvious that certain conditions were requisite to pro- 
duce its origin which could not be fulfilled till modern times. 

Firstly. The first requisite was the rise of great States, which, 
by the extent of their territory and the bulk of their population, 
were able to produce all that they needed, in fact, which became 
self-sufficient. Merchant cities, such as Tyre and Carthage, Venice, 

1 Switzerland and Holland might be added. — J. B. 



254 PRINCIPLES OF POLITICAL ECONOMY. 

or the Hanse towns, or the cities of the Netherlands, could lay 
claim to no such ability. 

Secondly. The other determining condition was a sufficient 
development of the means of transport for competition to become 
a matter of danger, in the production of articles of large consump- 
tion, such as agricultural products. When trade merely carried 
in caravans or in small galleys articles of luxury, such as Tyrian 
purple, Venetian brocades, Toledo blades, there was no reason to 
think about protecting national industries. But it is clear that 
such a question might become one of urgency, as soon as, from 
one end of the earth to the other, trade carried whole mountains 
of corn, flocks of sheep, shiploads of cotton stuff" and of cloth to 
feed and clothe a whole people. 

An account of the history of the protectionist system would be 
out of place in this book ; here we need only call to mind the most 
memorable dates. 

It was in the year 1846 that free trade was adopted in England 
by the abolition of the Corn Laws, after the heroic campaign led 
by Cobden. In i860 Napoleon III inaugurated the same policy 
in France, by the famous Treaties of Commerce with England. 
From that date it looked as if free-trade doctrines were destined 
to triumph all over the world. But the United States, in 1867, 
after the conclusion of the Civil War, and Germany, in 1879, under 
the influence of Prince Bismarck, adopted exceedingly protec- 
tionist laws, and other countries, in their turn, executed a right- 
about-face movement. In 1881 France reconstructed her general 
customs tariff on a more restrictive basis; in 1882 she refused to 
renew her treaties of commerce with England; in 1887 she bur- 
dened foreign corn with a duty, first of half- a- crown, and then of 
four shillings on every two hundredweight. In 1891 she is about 
to abandon all the commercial treaties which unite her to the rest 
of the world. 

It is not difficult to discover the reason for this opposition 
between theory and practice. No one denies that Free Trade is 
the system that is preferable from the theoretical point of view, 



PRODUCTION. 255 

or that it is the best suited to the general good of mankind. But 
nations and their rulers are not in the habit of speculating on 
the general 'interests of the human race ; they only busy them- 
selves with the particular interests of the country in which they 
live, and surely they cannot be reproached with criminality for 
doing so. Now they judge, whether rightly or wrongly, — the 
whole question rests on that, — that international trade, if left to 
itself, might tend to ruin the industry of a country, to restrict or 
even to stifle its productive powers, and even indirectly endanger 
the very national existence. 

Take, for instance, the importation of corn from America, which 
no longer allows French cultivators to grow corn at any profit. It 
may be the same with butcher's meat, with wine, with wool, with 
silk. Is it necessary, then, that these agriculturists, who form one- 
half of the whole population of France, should abandon the land, 
to swarm into the towns ? What dangers may not be incurred by 
the country in consequence of such a displacement of labor, — 
danger not only economically, but from the point of view of public 
health, of morality, of political stabihty, of military strength, of the 
future of the country ! Moreover, who can assure us that those 
portions of the populace, when once driven out of the country 
districts, will find more remunerative labor in the towns. Is it not 
possible that the manufacturing industry may, in its turn, sink under 
the weight of foreign importation? If a country is unfortunate 
enough to be inferior to certain foreign countries in all branches of 
production, it will be dislodged in succession from each of its posi- 
tions, and but one resource will be left to it ; namely, to transport 
its people and all its remaining capital into those very countries 
which wage against it the victorious competition, in order to 
benefit there, at least, from the conditions which bring about that 
superiority. If France can no longer sustain the competition of 
America, she must transplant herself to America ! 

Such, men say, is the logical consequence of a system which 
regards international trade merely as the fittest mode of organiza- 
tion for reaping the most possible from the earth and the men 



256 PRINCIPLES OF POLITICAL ECONOMY. 

that people it, without troubling themselves at the fact that these 
men are divided into nations, and that each one of these nations 
has the right and the will to live. 

It is true, they add, that competition within the country itself 
and home trade may produce the same effects in their spheres. 
It is possible that the liberty and the facility of communication 
between the department of the Cantal and Paris may involve the 
depopulation and the industrial death of that department ; but in 
this case one portion of France gains what another part loses; 
there is no reason for interference with that. But, if the liberty 
and faciUty of communication between America and France, by 
a like law, involve the depopulation and the industrial death of 
France, then there is reason to interfere ; and that not only in 
the interests of the country, but also in the higher interests of 
civihzation. For, after all, nations have another part to play 
on the world's stage besides that of mere economic producers, 
and cheapness should not be the only sufficient reason for their 
existence. 

II. The Protectionist System. 

The foregoing is an exposition of the dangers to be feared; 
what is the practical conclusion? Are we altogether to do away 
with international trade ? That, indeed, might be thought to be 
the logical conclusion of the train of reasoning set forth above. 
But no ; nothing of the sort ; protectionists are not in the least 
enemies to international trade. At any rate, that is their boast ; 
and they prove the truth of this claim by the efforts they make in 
discussing it among themselves, and, if need be, by the sacrifices 
they consent to bear for the purpose of binding together the vari- 
ous countries of the world by a network of railroads or by great 
maritime routes. The only thing is, that they regard international 
trade as a state of war, as one of the forms of the struggle for 
existence among nations. At any rate, that is the aspect which 
matters assume in our days. But Montesquieu had not foreseen 
such a situation when he wrote, "The natural effect of trade is 
conducive to peace." — Esprit des Lois, XX, Chap. 2. 



PRODUCTION. 257 

Now, just as the art of war consists in invading and occupying 
the enemy's territory without allowing one's own land to be in- 
vaded or occupied, so, too, the system of tactics of international 
trade ought to consist in inundating the enemy's territory with 
one's own exports without allowing foreign imports to enter one's 
own country. What is necessary, then, is to estabhsh a national 
industry which shall be vigorous enough to be capable of repelling 
foreign products and also of competing victoriously against these 
foreign products on their own ground. Such is the problem which 
has been posited by Protection for several centuries, and the 
solution of which is attempted by means of a whole bod/ of ex- 
tremely complicated tactics. 

We are not able to enter here into the details of this system, 
which has, indeed, varied a great deal in its main lines, but the 
following are its characteristic features. 

As to exports, first of all, they should not only be approved of, 
but should be sought for and encouraged, if need be, by bounties. 
Thus Germany and several other countries grant bounties on exports 
of sugar. The colonial policy, which the various countries of Europe 
have been lately following with such mad zeal, had no other object 
but to open up new markets and consequently to favor exports. 

Yet, by a contradiction which appears to be remarkable, the 
protective system formerly used to lay heavy duties on exports. 
These were justified by the intention of retaining in the country 
certain articles of wealth (such as raw material, corn, etc.), which 
seemed to be essential for production or for the food-supply of 
the country. Export duties are now no longer employed except 
for fiscal purposes, and are usually on articles which form a 
monopoly {e.g. guano in Peru, opium in India). 

Exports, then, are alleged to possess nothing but advantages : 

Firstly. Because they obtain for the country the profits which 
result from every act of sale made under normal conditions. 

Secondly. Because they cause coin to enter the country, or at 
any rate, render the country a creditor of foreign lands, which is 
always a favorable position. 



258 PRINCIPLES OF POLITICAL ECONOMY. 

Thirdly. Because they extend over the world not only the 
commercial relations of the country, but also its political power 
and its moral influence. To sell to foreign countries, is to make 
clients or dependents of them, not only literally, biit figuratively. 

Imports, on the other hand, present numerous dangers. First 
of all, in a general manner, since they are the opposite of exports, 
which are beneficent, they must be harmful. 

Fb'stly. Because instead of enabling us to make a profit from 
dealings with foreigners, they allow foreign countries to profit at 
our expense. 

Secondly. Because instead of making coin come in, they make 
it go out. 

Thirdly. Because instead of turning foreigners into our cus- 
tomers, they make us the clients of foreigners. 

FotLrthly. Above all, because they compete with national 
industries. 

It is necessary, then, if not to reject imports altogether, at least 
only to admit them knowingly (Cato the Elder long ago gave 
the same advice to landowners in his work De Agricultura, 
" patrem-familias vendacem, non emacem esse oportet." That 
might be taken as the motto of protectionists, and thus the 
protective system has been led to draw a goodly number of 
distinctions) . 

As regards the importation of exotic products, which have no 
equivalents in the receiving country, because, for one reason or 
other, it is unable to produce them (for example, coflee or choco- 
late in France, tea or wine in England), protectionists would see 
no difficulty in their free admission. But unfortunately, as financiers 
regard them as excellent taxable matter, these products do not 
gain much from this kindness of the protectionists. Thus Eng- 
land, which is altogether free trading, levies enormous duties on 
these products — tea, sugar, coffee, tobacco, and wines — which 
are valued at no less than ^^20,000,000 ; but these duties are 
purely in the interests of the exchequer. 

When duties have this fiscal character, it is to the interest of the 



PRODUCTION. 259 

government to lower them as far as possible, in order to develop 
the importation of taxable products. Experience shows that for 
this, as for all other taxes, postage duties included, the import 
usually yields an increased return in proportion to its lightness. 
But when duties have a protective character, the wished-for aim is 
a decisive reason for their being raised to as high a figure as pos- 
sible. 

As for raw material, and even for food-stuffs, men of former 
days (for instance, in the system of List) were inclined to admit 
them free. But now that progress and the cheapness of transport 
have wonderfully facilitated the entrance of raw material and agri- 
cultural produce, the producers of both, who are usually agricul- 
turists, have asked, not without reason, why they, too, are not 
protected. As a matter of fact, duties on food-stuffs (corn, cattle, 
wine, etc.) have become the rule in all protectionist countries, 
and the logic of events will not be long in laying them also on all 
raw material. 

Still, when we come to deal with imports which are necessary 
to feed our exports, they must be admitted freely, if we are 
desirous of extending our export trade. This has been done in 
the form of goods for re-exportation ; that is to say, free entry is 
granted to certain raw materials, such as iron, corn, etc., only on 
the condition that this material shall be re-exported in the shape 
of a manufactured article, such as machinery, flour, and so forth, 
within a specified time. The producer who imports his raw 
materials has to give security that he will re-export them in a fixed 
period, hence the name under which this system is known, — that 
of '-conditional quittances." There is also another plan known 
under the name of a " drawback." It differs from the preceding 
in that the duties must be paid on entry, but are returned on 
leaving. Both of these systems, in consequence of various reasons, 
the details of which cannot be entered on here, are the cause of 
innumerable difficulties, and even of harm to the treasury. 

Finally, as to the importation of uianufactured p7'oducts, there 
can be no possible hesitation, and the choice lies between pro- 



26o PRINCIPLES OF POLITICAL ECONOMY. 

hibition and duties on entry. These duties on importation are 
called specific when they are fixed only according to the weight or 
to the volume, ad valo7'em when they are fixed according to the 
value of the goods. The former of these systems is the more 
convenient, the latter is the more just. 

The second method, that of import duties, is usually preferred, 
and even exclusively adopted, because, on the protectionist theory, 
it unites the following advantages : — 

Firstly, of protecting the national industries in sufficient measure 
by graduating the duty according to the requirements. 

Secondly, of obtaining for the State, under the shape of customs 
duties, of revenues which cost the country nothing, since they are 
paid by foreigners. 

III. Whether the Dangers feared by the Protectionist 

Theory are Real. 

Among the dangers dreaded by the protectionists many are 
certainly baseless, but still there are some actual dangers. 

There is no reason to fear that imports will carry away all the 
country's coin, for observation, as well as reasoning, shows that 
this circumstance can never be brought except in an accidental 
and temporary manner. 

There is no reason to fear that foreigners, by selling to us, will 
grow rich at our expense ; for if we buy from them, that is assuredly 
because we find it economical to do so, and the part of buyer may 
be just as advantageous, though in a different way, as that of seller. 
The English and the Belgians, thanks to their freedom of impor- 
tation, can buy their bread for 3^. or 4^. the quartern loaf, whereas 
the French pay 7^. or 8^. Thus there is a saving of a penny on 
each pound, which, multipHed by 38,000,000 of Frenchmen, con- 
suming one pound per head each day, and for the 365 days of 
the year, would make an annual sum of ^23,000,000, — a rather 
higher sum than the interest on the French national debt, which 
in 1887 was ;£"3 5, 000,000. 



PRODUCTION. 261 

There is no reason to fear that we shall be driven to always 
import without ever exporting, for imports inevitably excite exports. 
Inversely, there is no reason to expect to be always able to export 
without ever importing, for exports necessarily cause imports. 
Besides, if in the process of international trade all countries were 
resolved to play exclusively the part of seller, and none of them 
agreed to play the part of buyer, how would trade be possible ? 

There is no reason to fear that imports, by making us the cus- 
tomers of foreigners, will put us into dependence on them, for it 
is not usually the case for customers to be dependent on their 
tradesmen. On the contrary, it is the tradesmen, rather, who seek 
to court the good graces of their customers. 

Finally, there is no reason to fear that imports will entirely do 
away with the national labor, for people forget that every importa- 
tion entails an exportation of equal value, and that consequently 
the national labor will recoup itself in one quarter for what it has 
lost in another. We need not then take as serious the appaUing 
picture just set before us — that of a nation driven from its territory 
by foreign competition, and compelled to emigrate to a foreign 
land. Even admitting that a country might be unlucky enough to 
be inferior to its neighbors in all branches of production, none the 
less it would be obliged to produce, in order to pay for the foreign 
products it might wish to consume, unless we are to suppose that 
foreigners would be generous enough to supply the country gratui- 
tously with all its necessaries, in which case its position would be 
a not unenviable one. And if a country did happen to be reduced 
to this situation of general inferiority, if it was really poorer than 
all other countries, if for the same or even a larger amount of labor 
it could only procure a smaller amount of satisfactions — well, it is 
certainly not prohibition of foreign products that could change 
such a situation in the least, or could prevent the inhabitants of 
that country from emigrating en masse, if ever misery gained the 
day over affection for one's native land. 

On the contrary, the nations of Europe would be unable to 
obtain food, and therefore to keep at home their ever-increasing 



262 PRINCIPLES OF POLITICAL ECONOMY. 

population, unless they were to import from abroad larger and 
larger supplies. Even now, England, in order to sustain on her 
limited territory her daily increasing population, is obliged to 
derive from imports more than, half of her consumption of cereals, 
meat, drink, etc. The home production of these articles was, in 
1883, reckoned to be ^^i 69, 140,000, and the importation of the 
same articles at p^i 74,660,000 (Stephen Bourne, in the Journal 
of the Statistical Society, September, 1883). 

To return to the dangers feared by protectionists. 

It is true that free trade, precisely because it enables the same 
amount of satisfaction to be obtained with less labor, which is the 
characteristic feature of all progressive production, may diminish 
the demand for labor in the very proportion of the economy real- 
ized and the progress accomplished. 

It is true that free trade almost always involves, especially at its 
beginning, great displacement of labor, which at certain points 
may cause the ruin of the capital sunk or the throwing out of 
work of the laborers employed, and these effects may take the 
shape of literal catastrophes. 

It is true that a country may be fearful of seeing sink, under the 
weight of competition, some one industry which it judges to be 
essential to its security ; such as the manufacture of arms, of pow- 
der, and even of locomotives, dockyards for the construction of 
war-ships, and even, in a certain measure, of merchant shipping, 
the breeding of horses, perhaps coal mines or iron fields ; or the 
industries may be such as it considers to be useful for the satis- 
factory working of its social constitution, such as the agricultural 
industry in general, or certain domestic industries. It may fear, 
too, especially if it be a new country, of seeing growing industries 
nipped in the bud, which, if they had had time to develop, might 
have borne fine fruit. 

In new countries, indeed, growing industries have to contend 
with great disadvantages. It is not easy for them to compete 
with industries of old standing, which are in possession of vast 
markets, and which, thanks to the extent of their production, can 



PRODUCTION. 263 

push to their utmost the improvements of division of labor and of 
production on a large scale. The struggle is the more arduous, 
because, ■ in hew countries, wages are higher and laborers less 
experienced. We all know that it is not easy to grow young trees 
in the neighborhood of old ones ; for, as the latter have already 
appropriated all the light of the heaven and all the sap of the soil, 
the younger trees have room to spread neither their roots nor 
their branches. Thus we understand well enough that the Aus- 
tralian colonies, who supply the whole world with wool, are 
desirous of turning it into cloth themselves, instead of sending it 
to England, to have it manufactured there, and then returned to 
them. In the same way, if the French colony of Algeria were to 
turn its alfa grass into paper on the spot, instead of exporting it 
in the raw state into England, or if Senegal could turn its arachides 
(ground-nuts) into oil, that would be a great gain, not only for them- 
selves, but for the whole world ; for there is no more sterile labor 
than that of transporting from one end of the earth to the other 
a dead weight and useless material ; that is a true labor of Sisyphus, 
for every useless act of conveyance is an useless waste of labor. 

Even if it were necessary for them to bear a certain sacrifice 
for some time, in order to put their manufactures into a state of 
stability, to enable them to take root and successfully compete 
with foreign manufactures, that, in our opinion, would be an ex- 
pense well incurred, which one day would be repaid them with 
interest. 

It must be confessed that this theory seems to be confirmed by 
the example of the United States, who, guarded by that rampart 
of protection that they had reared, have so brilliantly effected 
their economic evolution, and have become one of the chief man- 
ufacturing countries in the world. Would American industry have 
growTi so quickly had it had, from its first beginnings, to struggle 
against Enghsh manufactures, and might it not have been nipped 
in the bud by its powerful rival ? That is at least a question of 
debate. 

It is also worthy of note that most of the English colonies, 



264 PRINCIPLES OF POLITICAL ^.CONOMY. 

nearly all the Australian colonies, Canada, and so forth, although 
reared in the traditions of free trade, have felt the necessity of 
having recourse to the protectionist system. 

Within these limits the dangers pointed out by the protection- 
ists are real, and within th-^se limits we agree with them that the 
State has the right and the duty to guard against these dangers 
by the means that it judges to be best fitted to that end. The 
dogma of inadmissibility urged by the liberal school against every 
intervention of the State touches us little, not only because this 
principle has no absolute scientific value, but especially because 
the question here rests in the domain of politics rather than in 
that of economy. The point is to determine, not the best possible 
mode of commercial or industrial organization, but the best mode 
of preserving the industrial and commercial power of a particular 
country. We do not deny that the system of protection is a 
burden to the country which is obliged to resort to it, and that it 
entails considerable sacrifices j in that we fully agree with the 
free-traders ; we only add that a country does not hesitate to lay 
on itself equal or even heavier sacrifices, when the question at 
issue is to preserve its political, military, maritime, or colonial 
supremacy. Why should it not do the same for the purpose of 
saving its industrial or commercial supremacy, for that is of at 
least equal importance both for its national existence and for its 
destiny? 

IV. On the Disadvantages of Protective Duties. 

If we can grant the essential idea of protectionism, viz. that 
the State has the right to protect in certain particular cases the 
industries that are useful to a country, still in our opinion the 
means employed for that end do not appear to be justified, al- 
though they have been ht^llowed by a practice of several centuries : 
we refer to the laying of import duties. 

Numerous disadvantages are presented by this mode of pro- 
cedure. 



PRODUCTION. 265 

Firstly. It fails to achieve the proposed end, for <t brings 
about an unequal protection, which is insufficient for the weak 
and useless for the strong. Take a duty of two shillings on the 
hundredweight of corn, which raises the price of corn from 8 to 
10 shillings. The landowner who cultivates inferior land or who 
has but scanty resources, who produces merely ten hundredweight 
the acre, will only reap an increase in his income of 10 shillings, 
which probably will not be enough to cover his expenses ; whereas 
the landowner who being already favored by nature or by im- 
proved methods, grows thirty hundredweight the acre, and conse- 
quently could very well do without any protection, will find that 
his income is increased by ^3 the acre. 

Secondly. It grievously shackles foreign trade, for by reducing 
the importation of goods // reduces exports in the same proportion ; 
it is therefore in most flagrant opposition to the efforts that nations 
are making to facilitate communication, to pierce through moun- 
tains, to cut through isthmuses, to furrow the seas with lines of 
subsidized steamboats and telegraph cables, to open international 
exhibitions, to estabhsh monetary conventions, and so forth. 

Thirdly. It does the greatest harm to industrial production by 
raising the cost of pi^oduction, either directly by the increased 
dearness of raw material, or indirectly by the increased dearness 
of manual labor. Hence spring permanent and insoluble con- 
flicts between the various branches of production : if import 
duties are put on wools or silks to protect the producers of sheep 
or silkworm cocoons, there arise outcries for the silk-weavers and 
wool-spinners ; if import duties are put on wool, silk, or cotton 
threads, the weaving industries are ruined. The complicated 
mechanism of the treatment of " goods for re-exportation " is an 
altogether inefficacious palliative. 

■Fourthly. It does still greater harm to the material production 
by removing the stimulus of foreign competition. In a political 
speech Prince Bismarck spoke of those pike that are put in carp- 
ponds to keep the carp active and to prevent them burying 
themselves in the mud. That simile is especially appropriate 



266 PRINCIPLES OF POLITICAL ECONOMY. 

here. If we desire — and that is the protectionist's desire — a 
country to maintain its position as a great industrial and commer- 
cial power, it must be compelled constantly to renew its tools and 
machinery and its methods of work, ceaselessly to eliminate worn- 
out or obsolete organs, just as the snake which renews its youth 
by casting its skin. As this operation is always a disagreeable one, 
it is doubtful whether producers would submit to it with a good 
grace, were they not obliged to do so by an exterior power. 

Fifthly. Finally, and above all, it nurses in the country a fatal 
illusion, in causing it to rega7'd as a gain what is really a hiii'den. 
The advocates of protective duties assert, in fact, that as import 
duties are laid on foreigners, they do not burden the country at 
all ; nay, that they actually add to the income of the state. This 
illusion, the benefits of which the protective system has reaped, 
has made its fortune, but ought really to be enough to condemn it. 

For the effect of import duties is to add to the price of com- 
modities, not only of the imported goods, but also of similar 
articles which are consumed at home, so that the public pays out 
from its pocket, in the shape of higher prices, ten times the sum 
that is gained by the State. Let us suppose that 10,000,000 hun- 
dredweight of foreign corn enter France, worth on their arrival 
1 7 shillings the hundredweight. In consequence of the competi- 
tion of this foreign corn the 80,000,000 hundredweight of corn, 
which are approximately the production of France, are also sold 
only at 17 shillings, and this is the precise subject of complaint. 
Let us then put a duty of four shillings on the importation of 
foreign corn. From the custom-house receipts the State (pre- 
mising that this duty does not reduce the quantity imported) will 
gain 10,000,000 X 4 = ^2,000,000. Now let us see how the 
public fares ; not only will it pay four shillings more for each hun- 
dredweight of foreign corn, that is to say, ;,r2, 000,000, which 
is exactly equal to what the State receives, but also it will pay 
four shillings more for every hundredweight of corn produced 
in France, the French producers naturally hastening to sell their 
corn at the same price as the foreign producers ; that is to say. 



PRODUCTION. 267 

80,000,000x4 = ^16,000,000. That is to say, these protective 
duties will have brought altogether ^2,000,000 into the State 
coffers, and' ^16,000,000 into the pockets of home producers, 
but will have cost consumers ^18,000,000. That is the decisive 
argument against import duties, and in spite of its efforts, the pro- 
tectionist system has never succeeded in refuting it. 

The usual answer is to assure us that import duties are paid 
by the foreign producers, and that the price of the imported com- 
modity will not be increased. Allowing for one moment that this 
reply is a valid one, yet we should have to conclude from it that, 
since prices will not be changed, the national industry will not be 
protected one whit, and the criticisms we have just made on the 
system of protective duties will receive a last and even more 
clenching argument, "import duties are of no avail." 

However, though this reply of the protectionists may be a sound 
one in certain particular cases, it cannot be accepted in a general 
way. 

In consequence of a law, which is well known in this matter of 
imports under the name of the " law of transference," every tax 
paid by a producer or a merchant is laid by him on his goods, 
and thus falls upon the consumer. A fortiori this will be the case 
with the foreign producer. For how can it be reasonably sup- 
posed that a country has the power of throwing back on the for- 
eigner all or part of its imports ? Were such a pleasant receipt to 
exist, it is clear that each country would hasten to have its duties 
paid by its neighbors, and consequently no one would be a whit 
better off. 

Yet this notion is constantly reproduced : people are never 
tired of saying that the United States, thanks to their protective 
system, have been skilful enough to make foreigners pay the 
interest on their national debt, and even the greater part of the 
principal. It must be confessed that the Americans have espe- 
cially aided the spreading of this opinion by expressing it them- 
selves in the most naive manner. It can be judged from the 
following extract from a speech of Mr. Lawrence, Comptroller of 



268 PRINCIPLES OF POLITICAL ECONOMY. 

the United States Treasury : " By our customs tariff we inform the 
foreign manufacturer that he may send his products here, but that 
he must pay for this privilege. He is therefore compelled to 
reduce his prices and his profits, and to aid in the formation of 
that revenue which enables us to wipe out our public debt, and to 
pension off our soldiers who were maimed or wounded during the 
Civil War. This is distributive justice, since we force England 
and France to pay their share of the expenses of a rebelKon which 
they maliciously encouraged." (Quoted in the Economiste fran- 
gais, 1882, Vol. I, page 441.) Similarly, when Russia resolved that, 
to renew her stock of money, customs duties should henceforward 
be paid only in gold, she evidently imagined that foreigners, when 
sending her their goods, would at the same time send the quantity 
of gold necessary for the payment of these duties. That was won- 
derfully innocent ! It was the Russian buyers who were obhged 
to obtain the necessary gold, and not a piece more entered the 
country ! 

The argument of the protectionists may be sound, however, in 
one case which has been especially noted by John Stuart Mill. 
Every rise in price involves a reduction in consumption. The 
foreign producer will then have to ask himself whether it is not 
necessary for him to make a sacrifice and lower the price of his 
articles by a sum equal to the amount of the duty, in order to 
keep his custom by adhering to his former prices. The duty 
which falls on his products leaves him, therefore, on the horns of 
this unpleasant dilemma : either he must restrict the amount of 
his sales, or he must suffer a sacrifice in prices. It is not impos- 
sible that, when all is said and done, his interests may lead him to 
choose the second alternative, i.e. to burden himself with all or 
part of the duty. However, two conditions are requisite for his 
resigning himself to this extremity : firstly, his cost price may 
enable him to do so ; secondly, he is unable to send his products 
to another market. It would be chimerical to base one's actions 
on such an eventuality ; in any case, if this was realized by chance, 
the mark aimed at by the establishment of the protective duty is 



PRODUCTION. 269 

missed. It is impossible to escape from this dilemma. Besides, 
observation of facts shows, at least in a general way, that protective 
duties induce' a corresponding rise in price. 



V. Why the Bounty System is Preferable. 

If, then, a state judges that, under certain particular circum- 
stances, it is useful to protect the national industry, it should resort 
not to the system of import duties, but to the far simpler and 
more candid system of bounties, whether in the shape of guarantees 
of interest or of direct subventions. 

This method presents none of the disadvantages which we have 
shown to be inherent in the import duty system. 

Firstly. It can be graduated at will, so as to protect only those 
who really need protection, and no others. It may be said, " that 
will be arbitrary." The system of protective duties is also arbi- 
trary, the arbitrariness of a blind man ; whereas this may be that 
of an intelligent one. 

Secondly. It lays no shackles on foreign trade, and allows the 
full development both of imports and of exports, since it does not 
enhance the price of products. 

Thirdly. It does not interfere with production, for it does not 
make raw materials dearer and does not raise the cost of produc- 
tion ; on the contrary, it lowers it. It is true that, by granting a 
certain measure of security to the national industries, it may favor 
routine. That is an evil inherent in every possible system of pro- 
tection ; still, bounties may be established under certain condi- 
tions calculated to stimulate the progress of the protected industry. 
Thus the bounties granted by the law of 1881 to merchant ship- 
ping are more or less considerable, according as the ship is a sail- 
ing-vessel or a steamship, made of wood or of steel, and propor- 
tionate to its speed. 

Foitrthly. Finally, and above all, this system only professes to 
be what it really is — a sacrifice imposed on the country for a 
reason of public utility. It allows no illusion as to this, and gives 



270 PRINCIPLES OF POLITICAL ECONOMY. 

rise to no ambiguity. The public knows that it pays for this pro- 
tection, and knows exactly the price that it pays. Thus it may be 
held to be certain that a State will only resort to such measures in 
so far as their utility is clearly perceived, and that in all cases 
they will not be extended beyond foreseen contingencies, nor pro- 
longed beyond the fixed limit or term. Therein lies the economic 
and moral superiority of this system. 

This it is that is little realized by the protectionists, and hence 
they rarely ask for the apph cation of this system. They would 
have too much trouble in obtaining it. Yet the bounty system is 
practised in France in the shape of bounties for merchant ship- 
ping, both for building and for navigation, and is justly preferred 
to surcharges on foreign ships. In new countries it happens often 
enough that the State guarantees a certain interest on capital sunk 
in various industrial undertakings. Thus Brazil has granted a 
guamntee of six per cent on sugar manufactories, and a bill has 
been discussed in the Argentine Republic for granting a similar 
guarantee on " frozen meat " works. 

VI. On Some Moderate Forms of Protection. 

Some years ago a party was formed, which, demanding protec- 
tion in a general way, asked for reciprocity in the matter of customs 
tariffs. This is called in England fair trade, in antithesis to free 
trade. 

If the system is employed by way of reprisals to compel a pro- 
tectionist country to lower its duties, — if, for example, England 
answered the prohibitive tariffs of the United States by heavily 
taxing American produce, — in that case it might very well be 
justified. As a matter of fact, though, such a question is political 
rather than economical. 

If we go further, and attempt to discover in it a scientific theory, 
it is left without a leg to stand on. If the protective system is 
held to be beneficial, it should be adopted ; if it is regarded as an 
evil, it should be rejected ; but whether neighboring countries 



PRODUCTION. 271 

adopt it or not is their affair, not ours. No doubt, were England 
to lay duties on American products, she would injure the United 
States, but she would hurt herself too ; and the bad turn we are 
able to do our neighbor cannot be held to compensate for the 
harm we do ourselves. 

Another revised system is that of countervailing duties. Its ad- 
vocates assert that when a country bears a heavier load of taxes 
than foreign countries, to re-establish equality in competition it 
should burden foreign products with duties which are equivalent 
to the charges borne by its citizens. 

This argument is entirely based on the notion that customs 
duties are borne by the foreign producers. If, as we have at- 
tempted to show, that is a pure illusion, and if these duties really 
fall upon our own people in the shape of a rise in prices, then we 
can appreciate the wonderful originality of this so-called compen- 
sation, which, under pretence of equalizing the struggle, doubles 
the burdens of the public. 

Now if it is merely meant that foreign products ought to be 
laden with duties equal to those paid by the same products within 
the country, no one will contradict that principle of fiscal equahty. 
Yet this equality is not always observed, even in protectionist 
countries. Thus one of the great grievances at the present moment 
(1888) of the vineyard proprietors and wine merchants in the 
South of France is, that Spanish and Italian wines enter the coun- 
try with four or five litres of alcohol added per hectoUtre, and pay 
only 2/6 (half- a- crown) import duty, whereas in France each htre 
of alcohol pays 1/4 (one shiUing and four pence) as excise. That 
is an unjust privilege to the profit of foreign producers, and has 
been well called a sort of protection turned upside down. 



CHAPTER VII. 
CREDIT. 

I. Credit Operations. 

However ingenious exchange may be, it is an arrangement that 
cannot answer all needs ; for, in order to obtain anything by ex- 
change, one must be able to give in exchange an equal value. 
Now not every one is in a position to supply this value ; if each 
person who required lodgings was obliged to buy a house, it is 
easy to understand how extremely awkward such a state of affairs 
would be. 

Men have therefore been led to conceive an arrangement which 
is akin to exchange, but which is nevertheless different, to wit : 
lending^ by means of which I can obtain a thing provisionally and 
make use of it for a certain space of time, on condition of merely 
giving to the person who surrenders it to me an annuity propor- 
tional to the time I have enjoyed the use of his article. The name 
given to this annuity varies according to circumstances, such as 
farifi-rentj house-rent, interest. This is not the place to discuss 
the legitimacy or illegitimacy of this annuity ; that will be dealt 
with when we come to speak of the distribution of wealth. 

In popular speech, however, the word " credit " has a more 
restricted sense. It is apphed not to the loan of anything whatso- 
ever, say a piece of land or a house, but only to the loan of a sum 
of money. This is easily explained by the fact that, as money in 
modern societies is the form in which all capital is seen, every loan 
of capital usually takes the shape of a loan of money ; but we 
ought further to note that the loan of money has a special charac- 
teristic which radically marks it off from the loan of a piece of 
land or of a house. 
272 



PRODUCTION. 273 

This special characteristic Hes in the circumstance that the thing 
lent can only be utilized by the borrower on the condition that it 
is consumed, i.e. annihilated by him. The man who borrows cap- 
ital in the form of a bag of money must evidently, whatsoever use 
he may wish to make of it, empty the bag down to the last shilling. 
Similarly the borrower of a sack of corn, whether he borrows to 
sow it or to eat it, is compelled to destroy the corn, whether he 
intends to put it in the ground or grind it under the millstone. 

This characteristic is not specially confined to money ; it is pos- 
sessed by all things which in legal language are res fungibiles {vide 
Hunter, Roman Law, page 141), i.e. which are consumed at the 
first time of using. 

The feature just discussed introduces into the contract now 
under analysis serious modifications, as much for the borrower as 
for the lender. 

Firstly. The lender, to take him first, is exposed to far more 
considerable risks. The lender of a house or of a piece of land 
knows that it will be restored to him at the expiration of the lease ; 
for he, so to speak, does not lose sight of it while it is in the pos- 
session of the borrower ; but the lender of a res fungibilis, on the 
contrary, knows that he is irrevocably deprived of it ; he knows 
that it is about to be destroyed, and that such is its destination. 

The Roman jurisconsults had excellently remarked that the 
thing given in mittuum had to be alienated, thus differing from 
the thing given in eommodatum, which is merely lent. For when 
the date fell due, the borrower was not bound to return the thing, 
for it no longer existed, but had to transfer the proprietorship of 
something equivalent. 

The lender, true enough, reckons on an equivalent wealth to re- 
place that which he has lent, but this wealth is still non- existing ; 
it must be produced for that purpose, and everything that is future 
is ipso facto uncertain. Legislators, therefore, have exercised their 
ingenuity to guarantee the lender against all danger ; and the pre- 
cautions they have thought out to that end constitute one of the 
most important branches of civil law ; to wit, guaranty, mortgages, 



274 PRINCIPLES OF POLITICAL ECONOMY. 

joint responsibility, etc. Nevertheless, a certain amount of trust 
is also required on the part of the lender, that is to say, an act of 
faith, and this is precisely the reason why men have confined to 
this particular form of loan the name " credit," which, by its ety- 
mological origin, presupposes an act of faith {creditum, credei-e) . 

Secondly. To turn to the borrower : he is not merely bound, 
like the farm-tenant or the lodger, to preserve the thing lent to 
him and to keep it in good condition, so as to return it at the 
expiration of the fixed time ; after having used it, that is to say, 
destroyed it, he must labor so as to build up from it an equivalent, 
so as to wipe out his obligation at the appointed date. It is 
necessary, therefore, that he should be extremely careful to etnploy 
this wealth in a productive manner. If he is unlucky enough to 
consume it unproductively, say on personal expenses, or even if 
for any reason he fails to reproduce a wealth which is at least 
equivalent to that lent him, he is ruined. In fact, the history of 
all countries and of all ages is an actual martyrology of borrowers 
who have been ruined through credit. Credit, therefore, is an 
infinitely more dangerous instrument of production than those we 
have heretofore considered, and is a tool that should only be used 
by very experienced hands. 

It is sometimes said that credit only differs from exchange in 
having for its object, not any commodities whatsoever, but merely 
capital. That is correct, for we know that we must regard as capi- 
tal all wealth that is employed in the reproduction of new wealth. 
Now, as the operation just analyzed demands the productive 
employment of lent effects, it is right to say that the wealth which 
is the object of lending is or should be regarded as capital. So 
much the worse, then, for the borrower, if he is foolish enough to 
treat it as an income. He misunderstands the meaning of the 
contract, and for that reason the contract becomes for him a 
snare. 

It is also said sometimes that credit differs from exchange in 
that it consists not in the exchange of two existing wealths, but 
in the exchange of a present for a future wealth. That, too, is a 



PRODUCTION. 275 

correct statement, for we have just seen that the lender surrenders 
his article, in order to receive in exchange for it, at the date when 
his loan expires, an article which is at present non-existent, and 
which must be created during the interval. 

Later on we shall find in this the explanation of interest and dis- 
count. There is another credit operation which holds an important 
place in commercial transactions, and is known under the name of 
" sale for a payment at a future date," or deferred payment. At 
first sight we might be led to think that sale for payment at a future 
date is nothing but a sale, and ought therefore to fall within our 
chapter on exchange. Yet it is nothing of the sort, for the buyer, 
in exchange for the article handed over to him, gives nothing, prob- 
ably because he has no money ; he merely acknowledges himself 
to be a debtor for the value received, just as if he had borrowed 
it. He is bound to apply himself to reproduce this value before 
the appointed date, if he desires to be able to pay it back. This 
clearly shows the feature alluded to above — the exchange of 
present wealth for future wealth. Still, one might say the bor- 
rower pays interest, whilst the buyer for deferred payment pays 
nothing of the kind. That is erroneous. The price of an article 
sold for deferred payment is also higher than the price of ready 
money sales. The difference, which is called discount, exactly 
represents the interest on the capital lent to the buyer. 

The above are the fundamental credit operations. 

II. Credit Papers. 

Yet these operations required a further improvement. If it was 
very advantageous for the borrower, whether in the case of a loan, 
-or of sale for deferred payment, to have capital at his disposal for 
a certain time, on the other hand it was exceedingly disadvan- 
tageous for the lender to be obliged to do without that capital for 
the same period of time. A manufacturer has daily to make pur- 
chases and pay wages. He renews day by day the capital which 
he requires by the sale of his goods, but if he sells these goods for 



2/6 PRINCIPLES OF POLITICAL ECONOMY. 

deferred payment, it certainly appears that he must abandon the 
hope of obtaining his cash, and that he will find it impossible to 
carry on his business. 

What is to be done? Could it perhaps be brought about that 
the same capital should at one and the same time be at the dis- 
posal of two different persons, the man who has lent it and the 
man who has borrowed it ? 

. Yes, that can be managed. It is by means of credit that this 
apparently insoluble problem is solved. 

In exchange for the capital surrendered by him, the lender or 
the seller for deferred payment receives a document, i.e. a piece 
of paper in various forms, a note to order, a bill of exchange, 
etc., and this document represents a value which, like all other 
values, can be sold. If, then, the lender wishes to re-obtain his 
capital, nothing is simpler. It is enough for him to sell, or, as the 
phrase goes, to negotiate his paper. 

The following are the two principal forms of credit docu- 
ments : — 

Firstly, the note to order, which is drawn up in this fashion : 
*' On ninety days from date I will pay to Brown, or to his order, 
the sum of ;£40o, the value received in goods. April i, 1888. 
(Signed) Jones." 

Secondly, the bill of exchange, after this fashion : " On ninety 
days from date pay to Robinson, or to his order, the sum of ^^400, 
value received in goods. April i, 1888. (Signed) Jones." 

The note to order, then, is simply a promise to pay, made by 
the debtor to his creditor. The bill of exchange is a little more 
complicated. It is an order to pay, addressed by the creditor to 
his debtor, an order to pay not to himself, the creditor, but to a 
third party. It is thanks to this form that the bill of exchange is 
especially employed to settle transactions between one place and 
another, or between different countries. 

Each credit operation, then, gives birth to a credit paper. 
Since in every busy society these credit operations are exceedingly 
numerous, in consequence of the fact that e-ach commodity is 



PRODUCTION. 277 

often sold three or four times (each sale being for deferred pay- 
ment, and therefore giving rise each time to a new credit paper), 
the credit papers which exist in a country like France or England 
represent an enormous mass of value, perhaps ^400,000,000 
higher in any case than the value of any class of goods whatsoever. 

III. Whether Credit can create Capital. 

Credit has attained such importance in our modern societies 
that we are tempted to attribute to it powers that are miraculous. 
By speaking every moment of great fortunes that are founded on 
credit, by stating that the largest enterprises of modern industry 
have credit for their base, we are persuaded into the belief that 
credit is an agent of production, which, just like land or labor, can 
create wealth. 

Yet that is a phantasmagoric construction. Credit is not an 
agent of production ; what is a far different thing, it is a special 
7node of production, just like exchange, just like division of labor. 
As we have seen, it consists of the transferring of wealth, of capi- 
tal, from one hand to another, but to transfer is not to create. 
Credit creates capital not a whit more than exchange creates 
commodities. 

This illusion has been fostered by the existence of credit papers. 
We have seen that each loan of capital is represented in the 
lender's hands by a negotiable paper of equal value. Hence it 
seems that the act of lending has the marvellous power of making 
two capitals out of one. The former capital of ^100 which has 
passed into your hands, and the new capital which is represented 
in my hands by a bill for ^100, do not they make two? From 
the subjective point of view that paper is capital. It is so for me, 
but it is not so for the country ; for it is obvious that it can only 
be negotiable while another person is willing to surrender to me 
in exchange capital which he possesses in the shape of money or 
of goods. This paper, then, is not capital per se, but it simply 
affords me the possibility of procuring other capital in lieu of that 



278 PRINCIPLES OF POLITICAL ECONOMY. 

which I have given up. Besides, it is evident that whatever use I 
wish to make of this bill that I keep in my safe, whether I wish 
to devote it to the payment of my expenses or to productive pur- 
poses, I shall only be able to do this by converting this paper into 
objects of consumption or instruments of production which are 
already in the market. It is then with this wealth afforded by 
nature, not with these bits of paper, that I shall produce new 
wealth or merely obtain nutrition. 

Mr. MacLeod has earned special distinction as advocate 
of this thesis, that credit papers constitute real wealth and actual 
capital. He is logical enough in his conclusions, for he defines 
wealth as " everything which has an exchangeable value." Now 
as credit papers have incontestably an exchangeable value, they 
must certainly be reckoned as wealth. But it is the definition that 
cannot be admitted. If every credit paper, i.e. if every claim, were 
actually wealth, were each Frenchman to lend his fortune to his 
neighbor, by this one act the wealth of France would be simultane- 
ously and instantly doubled ; i.e. would rise from ^8,000,000,000 
to ;^i 6,000,000,000 sterling. Mr. MacLeod insists on the state- 
ment that these papers at least represent futjcj-e wealth. No 
doubt ; but it is precisely because they are future that they can 
serve for nothing, and should not be reckoned as existing wealth. 
They will be reckoned as soon as they have begun to exist. Till 
that time there will always be this difference between present and 
future wealth : the former exists, the latter does not exist. We 
produce and live by means of existing ; we could neither live nor 
produce with wealth in nubibus. It would be as sensible as, when 
making the census of the population of France, to add, as an 
earnest of the future members of society, all those who will be born 
twenty years hence ! 

Yet, though credit cannot be termed productive, in the sense 
that it does not create capital, nevertheless it renders eminent 
services to production in the following manner : — 

Firstly s by utilizing existing capital to the best possible advan- 
tage. For if capital could not pass from one person to another. 



PRODUCTION. 279 

and if each man were reduced to making a direct use of what he 
possessed, an enormous amount of capital would He idle. In fact, 
in all civilized societies there are a number of people who cannot 
work their own capital : 

To wit, those who have too much ; for as soon as a fortune ex^ 
ceeds a certain figure it is not easy for its owner to obtain th 
full profit from it by his unaided strength, without taking int.; 
consideration the circumstance that usually, in such cases, the 
possessor has no inclination to make such an effort : 

Those ivho have not efiough ; for workmen, peasants, domestic 
servants, who make small savings, cannot of themselves produc- 
tively employ such tiny capital. Still, when once these savings 
are combined, they may make hundreds of thousands of pounds : 

Those who, by reaso7i of their age, their sex, or their profession, 
cannot themselves employ their capital in industrial enterprises. 
This is the case with minors, women, persons who have devoted 
themselves to a liberal profession, such as lawyers, doctors, mili- 
tary men, clergymen, public servants, and employes of all classes. 

To reverse the picture : there are people in the world, such as 
promoters, inventors, agriculturists, nay, even workmen, who could 
easily make a good use of capital, if they only had it. Unfortu- 
nately they have not. 

But if, by means of credit, capital can pass from the hands of 
those who cannot or will not put it to account to the hands of 
those who are capable of employing it productively, that will be 
of great profit to each one of them, and to the whole country. 
Now, in every country, we can count by milKons of pounds the 
value of capital withdrawn in this manner, either from sterile 
hoarding or from unproductive consumption, thus fertilized by 
credit. 

Secondly, by causing the formation of new capital. For if peo- 
ple were unable to look forward to the employment of their sav- 
ings in loans, many persons, especially those just enumerated, 
would no longer be anxious to save, no possible future use being 
open to them. As to this point, see further on, " The Conditions 



280 PRINCIPLES OF POLITICAL ECONOMY. 

Necessary for Saving." In fact, credit is to capital what exchange 
is to wealth. We have previously seen that by transferring wealth 
from one possessor to another, exchange certainly does not create 
wealth, but none the less utilizes it and incites to its production. 

Thirdly, by allowing the saving of a certain amount of fnetallic 
money. This function of credit has already been discussed by us 
at length. We need not repeat the discussion here. 

IV. Banks. 

We saw above that exchange of commodities was scarcely pos- 
sible without the aid of certain middlemen whom we call traders. 
In the same way trade in capital would be impossible without the 
assistance of certain intermediaries who are termed bankers. 

Bankers are just like other business men. Business men as a 
class deal with commodities ; bankers deal with capital, in the 
shape either of credit papers or of coin. The former buy in order 
to sell again, and make their profits by buying as cheaply as pos- 
sible to sell as dearly as possible. The latter borrow in order to 
lend, and make their profits by borrowing as cheaply as possible 
in order to lend as dearly as possible. Here, then, are the two 
fundamental operations of all banking business, borrowing and lend- 
ing ; and as these borrowings are usually effected in the form of 
deposits and these loans in the form of discounts, they are gen- 
erally called deposit and discount banks. 

However, there is a third operation which is very different from 
the other two, though fundamentally it, too, is a mode of borrow- 
ing. We refer to the issuing of bank notes. But this operation is 
not essential to banks ; nay, in most countries it is an exceptional 
and privileged function which belongs only to certain banks which 
are called banks of issue. 

The history of banks is closely connected with the history of 
commerce ever since the Middle Ages. The creation of each 
great bank marks a new stage of commercial development. The 
first banks were those of the Itahan RepubHcs, Venice (? 1156) 



PRODUCTION. 281 

and Genoa (1407). Commercial pre-eminence then passed to 
Holland, and we come to the great and celebrated Bank of Am- 
sterdam (1609), speedily followed by those of Hamburg and Rot- 
terdam. Finally, the creation of the Bank of England in 1694 
teaches us that that nation is about to succeed to the commercial 
supremacy of the world. The Bank of France did not rise till 
much later, only at the beginning of the present century. Never- 
theless, in 1 716, Law had founded a famous bank, the sad termi- 
nation of which is well known to all the world. ^ 

Let us now examine in succession these three different opera- 
tions — Deposits, Discount, and the Issuing of Notes. 

V. Deposits. 

The banker's first task is to obtain capital. No doubt he can 
make use of his own capital or of those more considerable sums 
which may be furnished by association, and which in our great 
loan-societies may rise to some thousand millions pounds sterling. 
But if the banker carried on his operations only with his own pri- 
vate capital or that of the association, he would make but small 
profits and even would render little service to society : we shall 
soon see the reason for this. He is obliged, then, to carry on his 
operations by means of the money of the general public, and for 
that reason has to borrow it from them. (Many large banks never 
use their own capital in their business ; they invest it, either in real 
property or in stock, as a reserve or a guarantee to their clients. 
This is done by the Bank of France.) But how does the banker 
borrow this money from the pubhc ? Not after the fashion of a 
government or a corporation, or even an industrial society, which 
borrows for a long date, in the shape of stocks, debentures, or 
shares, the capital which its owners seek to invest. No ; such a 
mode af borrowing demands too high a rate of interest for the 
banker to find any profit on such transactions. What the banker 

^ See Dictionary of Political Economy ^ edited by R. H. Inglis Palgrave, 
article " Banks " ( 1 89 1 ) . — J. B. 



282 PRINCIPLES OF POLITICAL ECONOMY. 

asks from the public is that circulating, floatiDg capital which exists 
in the shape of coin in our trousers-pockets or in the drawers of 
our safes. In every country there is to be found in this form a 
considerable amount of capital, which is in nowise fixed, does noth- 
ing, produces nothing, and waits for the moment of employment. 

The banker says to the public, " Entrust it to me till you have 
found some employment for it. I will keep it for you, and will 
return it you when you require, at the first demand. While you 
thus wait I will give you a low interest on it, say i^ or 2 per cent. 
This will be always more than it produces for you ; for whilst it is 
in your strong-box it yields you no returns, and in any case you 
will avoid the trouble and anxiety of keeping it. Nay, if you wish 
it, I will do you the service of being your banker, of collecting 
your yearly income, cashing your coupons, and of paying your 
creditors, according to the instructions you give us, all which will 
be very convenient to you." Where this language is heard and 
understood by the public, bankers can obtain in this way, on very 
easy terms, a large amount of capital, by draining, so to speak, 
from circulation, the coin which is scattered about the country. 
The Journal of the Statistical Society of London for September, 
1884, reckons that the sum total of the deposits thus received 
by the banks of the whole world amounted to ^2,508,000,000, 
;^965,ooo,ooo of which were for England and her colonies com- 
bined. 

Sometimes, however, bankers pay no interest on deposits. Cer- 
tain banks, such as the Bank of England or the Bank of France, 
refuse to give any interest, for they consider that they render a 
sufficient service to the depositors whose money they receive ; and 
no doubt they are right, for they obtain enormous sums on deposit. 
A step further, too ; in former days, the deposit banks, those time- 
honored banks, for instance, whose names we gave a page or two 
back, actually demanded interest to be paid them by the depositors 
as recompense for keeping safely, as remuneration for services 
rendered. 

But most modern banks are accustomed to give their depositors 



PRODUCTION. 283 

a small interest, in order to attract, by means of that bounty, the 
largest possible amount of deposits. Naturally enough, the in- 
terest is a httle higher if the depositor agrees not to demand baclv 
his money for a certain period, say six months, a year, five years, etc. 
We have already observed more than once that in England, for 
example, it is customary for wealthy people to keep no money in 
their own houses, but to deposit it all with their bankers. If they 
have a payment to make to a tradesman or any other creditor, 
they simply send this creditor to receive payment at their banker's, 
by giving him an order of payment drawn up on a sheet detached 
from a note-book with perfoiations, which is called a check. This 
custom is beginning to become universal in all countries. But we 
should note that the check is not, properly speaking, a credit 
paper ; it is an order to pay from funds which the banker should 
have in hand for his customer's account. 

VI. Discount. 

Once that this floating capital has been borrowed by the bank 
at a cheap rate, it is the banker's business to turn it to account by 
lending it to the public. But how? The banker cannot lend it 
for a long date, say, by way of mortgage or of advancing funds for 
a sleeping-partnership in industrial enterprises. He is obliged not 
to forget that he only holds this capital on deposit ; that is to say, 
he may be obliged to reimburse it at a moment's notice ; he con- 
sequently can only let it out of his sight for short-dated transac- 
tions, which merely deprive him of the disposal of this capital for 
a short time, and which therefore in some measure allow it to 
remain within his grasp and beneath his eyes. 

What loan operation can fulfil these conditions ? 

There is one which complies with them admirably. 

When a merchant has sold his goods for deferred payment, 
according to the usage of commerce, if he happens to have need 
of money before the expiration of the time, he turns to the 
banker. The latter then advances the merchant the sum which is 



284 PRINCIPLES OF POLITICAL ECONOMY. 

due to him for the sale of his goods, making a deduction of a small 
sum which constitutes his profits, and receives in exchange the 
claim of the merchant upon his purchaser, i.e. his bill of exchange. 
The banker keeps this bill of exchange in his safe, and on the day 
fixed for the expiration of the bill he sends it to the debtor to be 
exchanged for cash ; in this way he recoups himself for the capital 
he had advanced. 

The above process is what is called discount. It is, we may say, 
a form of loan; for it is clear that the banker who, in return 
for a bill of exchange for ^50, payable in three months, advances 
to the merchant ^^48 5^, to receive from the debtor at the expir- 
ation of the bill the full sum of ^50, has in fact lent his money 
for a period of three months at an interest of six per cent or 
rather more. Moreover, it is always a short-dated loan ; for not 
only are the bills of exchange negotiated by the bank payable 
within a time which rarely exceeds three months, but this is a 
maximum which, in average cases, is never reached. The nego- 
tiators are not always able to negotiate their bills of exchange on 
the day after they have been sold ; they may have to keep them 
docketed for some time : it is even possible that they may not be 
called upon to negotiate them till the eve of the expiration of the 
bill. At the Bank of France the average period during which bills 
of exchange are kept is from forty to forty-five days. It is therefore 
only for a very short space that the banker deprives himself of the 
money he has received on deposit, for in the short period of six 
weeks on the average every shilling which has left returns to his safe. 

It would be difficult to find a loan operation which better com- 
plies with the exigencies of deposit. Let the demands for re- 
imbursement of deposits be grouped together during a period of 
above six weeks, and the banker, thanks to his own cash receipts, 
will always be able to cope with the demands. Now it is scarcely 
probable that these demands will be so frequent, at any rate during 
normal times. 

Still we must not conceal the fact that the banker has certain 
risks to run. If all the depositors were to arrange to come and 



PRODUCTION. 285 

ask for their money on one and the same day, the bank would 
obviously be unable to satisfy them, for their money is at that 
moment here,'there, and everywhere. True enough, it will speedily 
return to the banker's keeping, but there is always this difference 
between capital borrowed by the bank as deposits and capital 
lent by it as discount : The former can always be demanded back 
from the bank at a moment's notice, whereas it can only ask for 
the latter to be returned at the end of a fixed period ; and that 
difference is enough, at any particular time, to cause bankruptcy. 

But is this problematical danger a sufficient reason to deter 
banks from making use of the capital they receive on deposit, and 
to oblige them to keep such moneys as actual deposits, after the 
fashion of the old banks of Venice or of Amsterdam? Certainly 
not. Every one would be discontented. 

Firstly, The depositors themselves ; for it is clear that if the 
bank was compelled to keep their money in its vaults without 
employing it, instead of being able to give them a bonus in 
the form of interest, it would be the bank that would have to 
require the payment of interest, to compensate for the cost of 
keeping. It is better, then, for the depositors to run the risk 
of having to wait a few days for reimbursement, than to hoard 
their money at home unproductively, or to be obliged to pay for 
its safe keeping elsewhere. 

Secondly. Society, too ; for the social utility of banks consists 
in combining scattered and unproductive capital in the form of 
coin, so as to make out of it active and productive capital. This 
social function would evidently disappear from the moment that 
banks were unable to make use of their deposits. 

Banks, then, do not hesitate to use the sums confided to their 
charge ; but in order to face any possible demands or runs, they 
are always careful to keep a certain reserve. 

It is impossible to prescribe a priori any proportion between 
the amount of the reserve and the sum total of the deposits. A 
bank's reserve should always be the larger, the slighter its credit 
and the more numerous its large deposits. It should, in particular. 



286 PRINCIPLES OF POLITICAL ECONOMY. 

Strengthen its reserve during commercial crises, on the advent of 
the issues of government stock, or of debentures, — in a word, 
under all circumstances when it can foresee that the depositors 
will require their money. Contrary to the usual belief, the amount 
of the reserve of the Bank of France is not fixed by law. It might 
be nil, but it is usually excessive. 

However, discount is not the only way in which banks can make 
use of their capital. They lend them also — 

Firstly. In the shape of advances on bills ; i.e. by taking in 
pledge movable property, and being careful that the sum lent 
shall be sufficiently lower than the value of the goods or stock- 
exchange securities. This process is one of the most important 
lines of business of the Bank of France. 

Secondly. In the shape of credit that they open for their cus- 
tomers. When they have a running account with it, the bank can 
allow them to withdraw more than they have deposited ; in other 
words, it practically gives them a loan. Still, as this method of 
loan (lying uncovered, as the term goes) is exceedingly dangerous, 
and presents no guarantees, some banks refuse to practise it. It 
is absolutely forbidden by the regulations of the Bank of France. 

VII. On the Issuing of Bank Notes. 

As with all other business men, it is to the banker's interest to 
extend his operations as much as possible. By doubling them, he 
doubles his profits. How is this effected ? 

The banker does not generally find it difficult to find a use for 
the capital he holds. There are always plenty of people who 
desire to borrow. By lowering the rate of discount he can nego- 
tiate as much paper as he wishes. 

But, before being able to lend capital, a prior condition is 
necessary ; namely, to possess capital. There's the rub ! In fact, 
it is not so easy to find lenders as it is to meet with borrowers. It 
is necessary that the public should bring their money to deposit, 
and it may happen that they are not very eager to do so. 



PRODUCTION. 287 

Now if the banker could create capital de novo in the form of 
coin, instead of having to wait patiently till the pubHc is willing 
to bring it to h^m, nothing would prevent him from extending his 
operations indefinitely. 

Some bankers, then, conceived the ingenious idea of thus 
creating the capital they needed by the issue of simple promises 
to pay, i.e. bank notes, and experience has proved the excellence 
of the device by its perfect success. This ingenious invention is 
attributed to Palmstruch, who founded the Bank of Stockholm in 
1656. It is true that the Italian and Amsterdam banks issued 
many notes, but these merely represented the money the bankers 
had in their safes ; in other words, v/ere only receipts for deposits. 

In return for commercial bills which are presented to them 
to discount, the banks, instead of paying in money, give notes. 
But it may be asked. How is the public brought to accept this 
combination ? In return for a bill of exchange which he comes 
to have discounted, the business man receives merely another 
credit paper; that is to say, a bank note. What use is it to him? 
He wants money, not credit papers ; for as regards paper he 
might just as well have kept that which has passed into his own 
hands. 

It is enough to remark that, though the bank note is really only 
a credit paper, just like the bill of exchange, yet it is far more 
convenient paper. 

The following characteristics differentiate it from credit papers, 
and particularly from bills of exchange : — 

Firstly, it yields no interest, not a whit more than a coin. Its 
value, therefore, is always the same and is not liable to vary 
according to the distance from the day when it falls due. 

Secondly, it is transferable to bearer, just like a coin, and is not 
subjected to the formalities and responsibilities of endorsement. 
We are all aware that the transference of credits, and especially 
the question of knowing when this transfer was possible, was one 
of the most delicate questions in Roman Law. In the French 
Civil Law such a transference is still subjected to somewhat com- 



288 PRINCIPLES OF POLITICAL ECONOMY. 

plicated formalities. Even in Commercial Law, though these for- 
malities have been simphfied as much as possible, it is still neces- 
sary for the transference of a commercial bill to John Smith that 
the lender should write on the back, " Pay to the order of John 
Smith," together with his signature and the date, and thus himself 
becomes liable in case of non-payment. This is what is known as 
endorse?nent. 

Thirdly, if is payable at sight, i.e. at any time whatsoever, 
whereas a commercial bill is payable only at a specific date. 

Fourthly, it is always payable on deinand, whereas credit papers 
are payable only on maturity. 

Fifthly, it is for a round sum, thus harmonizing with the current 
money systems, ten pounds or one thousand francs or fifty dollars, 
whereas other credit papers, which represent commercial transac- 
tions, usually involve fractional amounts. 

Sixthly. Lastly, // is issued and signed by a well-known bank^ 
the name of which is usually familiar to every one, even to those 
of the public who are not versed in commercial matters ; for in- 
stance, the Bank of France or the Bank of England ; whilst the 
names of the signatories of bills of exchange are scarcely known 
except by those persons who deal with them. 

Observe, however, that when the particular promise to pay is 
destined to circulate like a bank note, the solvency of the debtor 
is not so keenly scrutinized as when it is a bill intended to be 
docketed, such as a certificate of stock, a share, or a debenture. 
Indeed, this holder for a day has no need to trouble as to future 
solvency : his affair is merely present solvency. 

All the above considerations cause the bank note to be really 
accepted by the public as ready money and to become pure paper 
money. In France and England, too, the bank note is also legal 
tender, just as gold pieces and the five-franc silver piece ; but we 
must not fall into the common error of comparing legal tender 
with forced currency.^ A bill is legal tender when creditors or 

1 It is impossible to reproduce the play upon words of the original, " cours 
legal et covixs force. ''^ — Translator's note. 



PRODUCTION. . 289 

sellers cannot refuse it in payment. A bill has forced currency 
when holders have not the right to demand from the bank its 
reimbursement in cash. Forced currency always presupposes legal 
tender, but the reciprocal does not hold good. Bank notes are 
legal tender in France and in England, but they do not possess 
forced currency. Every one is obliged to accept them, but every 
one, if he likes, can have them cashed by the bank. 

It is obvious, now, that banks must derive great benefit from 
the issuing of notes. On the one hand it provides them with the 
resources necessary for indefinitely extending their operations, but 
within those limits that prudence dictates, and which we will exam- 
ine presently. On the other hand, this capital which they obtain 
in the shape of notes is far more profitable to them than what 
they receive as deposits ; for the latter, as we have seen, costs 
them one or two per cent interest, whereas the former merely 
costs the expenses of manufacture, which are of no importance. 

But we must not conceal the fact that, though this operation 
may give bankers splendid profits, it is also capable. of causing them 
serious dangers. For the sum total of notes in circulation which 
can at any moment be presented for reimbursement represents a 
debt which is immediately payable, on demand, just as the capital 
resulting from deposits. Consequently, the bank is henceforward 
exposed to a twofold peril : it has to meet at the same time the 
reimbursement of its deposits and the cashing of its notes. 

If the necessity of a reserve forced itself upon bankers, when 
they had only to meet the reimbursement of deposits, a fortiori is 
it felt when to the debt payable at sight, resulting from its de- 
posits, is added this further debt that amounts to the sum of the 
notes the bank has in circulation. 

Unfortunately, as money that lies idle in cellars gives no profits, 
the self-interest of banks pushes them to reduce their reserve to 
the minimum, and they find it difficult to resist the temptation. 
If the Bank of France, for instance, was a private bank and was 
exempt from the rigorous provisions of the law, it is certain that 
the shareholders would protest energetically against the locking 



290 PRINCIPLES OF POLITICAL ECONOMY. 

up of its two millions of francs in hard money, and would clamor 
for their employment as discount or in any other lucrative manner. 

VIII. The Differences between the Bank Note and Paper 

Money. 

Bank notes and paper money resemble one another so closely 
that the pubhc scarcely understands the difference between them. 
Both of them stand for money ; but the bank note possesses three 
charactistics, or rather presents three guarantees, which are absent 
from paper money. 

Fii'stly. In the first place and above all, the bank note is always 
payable in cash, i.e. convertible into specie, at the holder's will, 
whereas paper money is not. The latter, indeed, has the appear- 
ance of being a promise to pay a certain sum, and the holder may 
entertain the hope that one day or other the State, when in better 
circumstances, will reimburse the value of its paper ; but this more 
or less distant prospect (in Russia, in truth, it has not been real- 
ized for over a century) scarcely affects those who receive these 
notes and have no intention of keeping them. 

Secondly. Again, the bank note is issued in the course of com- 
mercial transactions, and only to the extent necessitated by those 
operations, — e.g. for an equal value (less discount) to that of bills 
of exchange which are presented for discounting, — whereas paper 
money is issued by the government for the purpose of meeting its 
expenses, and this emission has no other limits or rules than the 
financial necessities of the moment. 

Thirdly. Finally, as the name itself shows, the bank note is 
issued by a bank, that is to say, by a company which, though per- 
haps called a government bank or a public bank, is none the less 
a company whose principal object is the carrying on of business 
transactions ; whereas paper money is issued by a government. 

Thus the bank note is very distinct from paper money. Still it 
may sometimes approach remarkably close to the latter, through 
losing all or some of the characteristics described above. 



PRODUCTION. 291 

Firstly. It may happen that the bank note may have forced 
currency, i.e. be no longer payable in cash, at any rate for a longer 
or a shorter period. This occurs at times of crisis for the notes of 
almost all the great banks. 

In that case there still remain between the bank note and paper 
money the two other differences we have pointed out, particularly 
the second one. The quantity issued is neither unHmited nor fixed 
in an arbitrary manner. It is always regulated by the actual needs 
of commerce. That is a powerful guarantee. 

Secondly. It may happen that the bank note not only receives 
forced currency, but that, instead of being issued to supply com- 
mercial transactions, it is issued merely for the purpose of making 
advances to the government, and of enabhng it to pay its expenses. 
This is how the affair is usually managed. The government needs 
money. It says to the bank, "Make us some hundred million 
notes, which you must lend us, and we will cover you by granting 
them forced currency." 

In this case the second guarantee disappears. The emission of 
notes has then no other limit than the necessities of the govern- 
ment, and in such circumstances we must confess that the bank 
note remarkably resembles paper money. 

This is just what occurred during the Franco-German War of 
1870. The French government borrowed from the Bank of 
France, by various instalments, a total sum of ^58,800,000, but 
its first step was to declare them forced currency. 

Still, even in such cases as this, the third difference subsists, 
and it of itself is enough to render the bank note, even under these 
conditions, far less subject to depreciation than is paper money. 
This has been so thoroughly proved by experience that States usu- 
ally abandon the right of directly issuing paper money, and have 
recourse to the intermediary services of banks. For the public 
thinks that the bank will resist as long as possible any exaggerated 
issue of notes that may be attempted to be forced on it, since that 
is the road to ruin. The public also believes, and unfortunately 
not without reason, that the solicitude of a financial company. 



292 PRINCIPLES OF POLITICAL ECONOMY. 

which has to guard its own moneys, is more vigilant and more 
tenacious than that of a government or financial minister which has 
only to look to the interests of the State. 

IX. The Rate of Exchange. 

The safes of all great banking houses, at any rate of those 
whose operations extend abroad, are crammed with bundles 
of bills of exchange, payable at all places in the world. They 
stand for effects worth many milHon pounds, and are the object of 
a very active trade. They are called paper on London, paper on 
New York, etc., according to the place at which the paper is 
payable. 

The bankers who hold them and who deal in them are clearly 
nothing but middlemen. We must ask then, from whom do they 
buy such goods, and to whom they sell them? 

First of all, from whom do the French bankers buy them? 
From those who produce them, that is to say, from all those per- 
sons who, for one reason or another, are creditors of foreigners ; 
e.g. from French merchants and producers who have sold goods 
to foreigners, and who, on the conclusion of the sale, have drawn 
a bill of exchange on their purchaser in London or New York. 
If it happens that the merchant needs money before the bill be- 
comes due, or merely if he finds it inconvenient to send his bill 
abroad to be settled, he will pass it on to his banker, who will buy 
it from him ; I mean, will discount it for him. 

To whom, now, do the bankers sell it? To all who need it, 
and they are a numerous class. This paper is much in demand 
with all persons who have payments to make abroad ; e.g. French 
merchants who have bought goods from foreign houses. If they 
have not been able to make the seller draw a bill on them, they 
will be obliged to send in cash the sum total of the price right 
away to the residence of their creditor ; but, if they are able to 
obtain paper payable on the place where their creditor lives, they 
have then a far easier and less costly mode of settling their debts. 



PRODUCTION. 293 

It would appear that this paper ought to be sold, or negotiated, 
as the phrase goes, for a price that is always equal to the sum of 
money it gives the right of obtaining. Thus a bill of exchange 
for £100 ought to be worth ;^ioo, neither more nor less. As a 
matter of fact, nothing of the sort happens. It is obvious that 
important conditions which cause the value of the paper to vary 
are the amount of confidence reposed in the signature of the 
debtor, and the nearness or distance of the date when the bill 
falls due. But, even after abstracting these self-evident causes 
of variation, even supposing that the paper is payable at sight 
and above suspicion, still its value will vary every day according 
to the oscillations of supply and demand, just as the value of 
any other commodity. These variations are what are called the 
rate of exchange, which is quoted in the papers like the Bourse 
(Stock Exchange) rate. 

It is easy to understand what is meant by supply and demand 
as applied to commercial bills. Let us suppose that the claims 
of France abroad, whether for her exports or for any other cause, 
amount to ;^40,ooo,ooo. Let us further suppose that the debts 
of France abroad, whether for her imports or for any other cause, 
amount to ;^8o,ooo,ooo. It is probable that there will not be 
enough paper for all who require it, for the supply cannot exceed 
;^40,ooo,ooo, and the demand may rise to ;^8o,ooo,ooo. All 
people, therefore, who require this paper to settle their account's, 
will bid highly for it. Foreign paper will rise in value, that is to 
say, a bill of ;^ioo, payable in Brussels or in Rome, will, in- 
stead of being sold for ^100, be sold for j£"i02 or ^105. 
Thus, as the term goes, it will be above par ; i.e. will rise to a 
premium. 

The business of measuring and quoting these variations in the 
rate of exchange has been raised to the height of a science. The 
unit usually taken for the bill of exchange is a hundred monetary 
units, — francs, dollars, roubles, marks, florins, etc., — and the ques- 
tion is to discover whether the quoted price is less or higher than 
the nominal value. For instance, let there be a bill of exchange 
on Hamburg for 100 marks: as the mark is worth i franc 22 



294 PRINCIPLES OF POLITICAL ECONOMY. 

centimes, the nominal value of this bill is 122 francs. Still, in 
the exchange on London the itiit taken is the one-pound bill of 
exchange, the actual value of which in French money is 25 francs 
22 centimes. The exchange on London, therefore, is at par every 
time that on the Paris Bourse paper on London is quoted at 25 
francs 22 centimes. 

Now let us look at the converse. If we suppose that the claims 
of France abroad rise to ;^8o,ooo,ooo sterling, whilst the debts 
contracted abroad by France only reach ;2{^40,ooo,ooo, it is 
probable that paper will be superabundant, for there will be 
;^8o,ooo,ooo to dispose of and the settlement of the exchanges 
will absorb only ;^40,ooo,ooo. A great number of bills, then, 
cannot be negotiated and can be only utilized by being sent 
abroad to be cashed. Bankers, therefore, will strive to get rid of 
such papers by disposing of them even below their actual value. 
Thus the hundred-pound bill on Brussels will be disposed of at 
99.8 or 99.5 ; i.e. it will fall below par. 

Every time that in any country, say France, paper payable 
abroad is quoted above par, the exchange is said to be unfavor- 
able to this country, France, as regards specie. What does this 
mean ? That the price of the paper is unfavorable to the buyers ? 
No ; for then we should have to say that this rate is favorable to 
the sellers. The meaning is that the rate of exchange, under 
these conditions, shows that the claims France holds abroad are 
not sufficient to balance her debts contracted abroad, that conse- 
quently, to settle the difference, she will have to send abroad a 
certain quantity of coin. The rise in the rate of exchange, other- 
wise called dearness of foreign paper, presages, as an infallible 
symptom, a going out of coin, and therefore we use the expression 
"unfavorable exchange." 

Inversely, whenever in France foreign paper is quoted below 
par, the exchange is said to be favorable to France, and the train 
of reasoning is the same. The fall in the price of foreign paper 
shows that when all reckonings have been made, the balance is to 
the credit of France, and is therefore followed by entries of coin. 



PRODUCTION. 295 

No doubt we must not use these words "favorable " and "un- 
favorable "in an absolute sense, for we know that the fact of a 
country having to send much coin abroad, or to receive it there- 
from, constitutes neither a great peril nor a great advantage, 
and that in any case the circumstance is merely temporary. 
But from the banker's point of view this situation is of very great 
importance, for if money has to be sent abroad, it will be taken 
from the chests of the banks. All the premonitory signs, therefore, 
are of capital importance to bankers, and they always keep their 
eyes fixed on the rate of exchange, just as sailors watch the 
barometer. (See the next section, " The Raising of the Rate of 
Discount.") 

Still, we must observe that variations in the price of paper are 
confined within far narrower limits than are those of ordinary 
commodities. This price, at any rate during normal periods, save 
for the exceptions about to be noted, is never quoted either 
much above or much below par. This fact is explained by two 
reasons. 

Firstly. Why does the business man, who is a debtor of the 
foreigner, seek for bills of exchange? Merely to save the expenses 
of sending over coin. But, as soon as it becomes clear that the 
premium he would have to pay to obtain the bill is higher than 
the cost of transporting coin, he would no longer have any reason 
for buying. For their part, too, the merchant who is a creditor of 
the foreigner, and the banker who acts as middleman, only seek 
to negotiate these bills of exchange to avoid the trouble of having 
to send them abroad to be cashed, and the subsequent carriage of 
the coin. But clearly, rather than sell these bills at a low price, 
the merchant or banker would prefer the above cumbrous method 
of procedure. To sum up, as the trade in paper money has no 
other aim than to serve to economize the cost of transporting coin, 
it is easy to understand that this trade will cease to have any raison 
d^etre as soon as it becomes more expensive for the parties 
concerned than the direct sending of coin ; i.e. as soon as the 
variations in price, whether above or below par, exceed the cost 



296 PRINCIPLES OF POLITICAL ECONOMY. 

of carriage. Now these expenses, even with insurance thrown in, 
are extremely small ; extremely small, therefore, must also be the 
variations in the rate of exchange. 

Secondly. But these variations are limited by another cause, 
which at one and the same time is more remote and more subtle. 
Let us suppose that the price of the foreign bill of exchange rises 
above par, i.e. that the merchant who has drawn upon his foreign 
buyer a bill for ^100 can sell it for ;£iii. It is clear, then, that 
those j[^\ I are so much added to his profits on the sale. Instead 
of gaining 10 per cent, as he perhaps expected, he gains 11 per 
cent. These additional profits for all those who have sold abroad 
will induce a large number of merchants to follow their example ; 
in other words, " the rise in the rate of exchange acts as a pre- 
mium on exportation." 

For instance, after the war of 1870 the exports of France 
increased enormously for several years. Why? Because, the huge 
payments that the French had to make to Germany having caused 
foreign paper to rise greatly above par, the profits that exporters 
obtained from the paper they drew on their foreign debtors were 
such that they could content themselves with an extremely small 
profit on the price of their goods, and could, if necessary, sell 
them at a loss. Thus the French had come to sell to the foreigner, 
less in order to gain on the price of the goods than to gain on the 
price of the bill. 

Now, in direct ratio to the increase of exports will be the mul- 
tiplication of the bills of exchange to which they give rise, and the 
value of these bills, according to the general law of supply and 
demand, will fall progressively, until it has descended below par. 

Inversely, if the paper falls below par, it is easy to prove by the 
same reasoning that this depreciation will entail a loss on the mer- 
chants who have sold goods abroad, and ^vill consequently tend 
to reduce exports, and then by reaction to reduce the supply of 
foreign paper, until its value has risen again to par. 

In the whole matter there is nothing more than the ordinary 
mechanism of supply and demand, which, whenever the value of 



PRODUCTION. 297 

a commodity is disturbed from its equilibrium, tends to bring it 
back to that position, either by an increase or by a restriction 
of production; 

Nevertheless, this general law produces in this instance a very 
curious effect, the consequences of which are very important from 
the point of view of international trade. Whenever the balance 
of trade is unfavorable to a country, i.e. when its imports exceed 
its exports, the resulting rise in the rate of exchange tends to 
reverse the position, and to make the balance of trade favorable 
by increasing exports and reducing imports. The rate of exchange, 
then, constantly acts on trade like those regulators of steam- 
engines, which always tend to restore the velocity of the engine 
to a state of equilibrium, and a variation of a few pence is thus 
enough to restore to equilibrium balances which amount in value 
to many thousand millions sterling. 

We said that in exceptional cases the rate of exchange may vary 
in considerable and even unlimited proportions. Here are the 
circumstances : — 

Firstly. When the place on which the paper is payable is very 
distant, or the means of communication with it are difficult, as the 
cost of sending coin is much larger, the variations in the price of 
bills of exchange will also be far more marked. Paper on Khar- 
toum or even on Samarkand will certainly be accepted, even if the 
taker has to pay 10 or 12 per cent above its nominal value, 
and, reciprocally, it will always be to the creditor's interest to 
negotiate it, even at 10 or 12 per cent below par. 

Secondly. But it is especially when we are dealing with a coun- 
try whose money is depreciated, that the variations in the rate of 
exchange may become excessive and, relatively speaking, un- 
bounded. Here is a bill of exchange on St. Petersburg for 100 
roubles; the real value at par would be 400 francs (;^i6), the 
rouble being worth 4 francs. Yet, if we consult the rate of ex- 
change, we shall see that paper on St. Petersburg (July, 1890) costs 
286 francs, or a huge depreciation of 30 per cent. How could it 
be otherwise? Such is exactly the depreciation of the money 



298 PRINCIPLES OF POLITICAL ECONOMY. 

current in Russia, the paper rouble, and naturally a bill payable in 
that money must undergo an equal depreciation. 

It is enough, then, to read the rates of exchange, even if we 
have no other acquaintance with the economic and financial state 
of the different countries, to be able to perfectly understand their 
situation, and to divine whether they buy more than they sell, or 
sell more than they buy, whether their currency is depreciated, 
and what is the exact amount of that depreciation. 

Thirdly. Whenever, for one cause or another, the debtor finds it 
hard to obtain money, — either because his credit is limited or be- 
cause the banks make difficulties about discounting for him, — the 
rate of exchange may rise greatly above par. For example, after 
the payment of the five milliards war indemnity to Germany, 
France, as is easily seen, had some trouble in obtaining that enor- 
mous ransom, and the French government, in order to extricate 
itself, sought everywhere for paper on Germany, or even on Lon- 
don, in order to pay by way of a7'bit7'age ; in consequence the rate 
of exchange on Germany and even on London for long continued 
to be above par. 

This ai'bitrage is only a more complicated operation of exchange. 
Here is the explanation. It is not only at Paris that paper on 
London is to be found ; it is obtainable at all the commercial cen- 
tres of the world. If, then, it is too dear at Paris, an attempt 
may be made to find a place where, in consequence of different 
circumstances, it is cheaper. Now this operation, which consists 
in buying paper where it is cheap to sell it again where it is dear, 
is what is called arbitrage. It produces the interesting effect of 
extending through all countries facilities of payment by means of 
coinpensatio. For dearness of paper points to a place where debts 
exceed credits, the former of which, consequently, cannot be. 
liquidated by means of compensatio alone. But by the aid of 
the paper which the practisers of aidntrage seek to obtain abroad 
(which they seek for in places that are in the converse position, i.e. 
where claims exceed debts, for there only can the paper be got 
cheap), equilibrium can be re^-established and the sum-total of 
debts can be ;settJe4 by way of coifipensatio. 



PRODUCTION. 299 

X. The Raising of the Rate of Discount. 

There is one 'case in which banks are hable to have to reimburse 
a great quantity of their notes ; viz. whenever they have to make 
considerable payments abroad. As these payments must be made 
not in notes, but only in coin, the bank will be applied to to con- 
vert the notes into specie. 

If, after a bad harvest, some milhon hundredweight of corn have 
to be bought abroad, a large sum of money, amounting to a good 
many milHons sterling, will have to be sent to America or Russia, 
and the bank may be certain that the larger part, if not the whole, 
of this sum will be fetched from its chests. As we have seen, the 
safe-rooms of the bank are the reservoir in which accumulates the 
largest portion of the floating capital of the country in the shape 
of coin, and the only one that can be drawn on in cases of 
urgency. Such a situation may be dangerous for the bank, if its 
reserve, especially of gold, is not very large. Happily, it receives 
prior warning of this situation by a sign which is safer than that 
given by the barometer to the sailor or by the ^' manometer " to 
the mechanician, — in a word, by the rate of exchange. Thus, if 
the exchange becomes unfavorable, i.e. if foreign paper is negoti- 
ated above par, that is a proof that the debtors who have payments 
to make abroad are very numerous, far more numerous than those 
who have payments to receive, and that consequently, inasmuch 
as the balance cannot be settled by means of compe^isatio, coin 
must be sent abroad to make up the difference (see a few pages 
back) . Now that the danger has been perceived, the bank can 
take its precautions. 

To guard against this eventuality of too heavy cash payments, 
it must take the measures necessary either for increasing the re- 
serve or for diminishing the quantity of its notes in circulation, the 
latter of which comes to the same thing as the former, and is more 
easily executed. For the bank, in truth, cannot increase its reserve, 
but it can refuse to issue any more notes, i.e. it can refuse to make 
any more loans to the public in the shape of advances, or as dis- 



300 PRINCIPLES OF POLITICAL ECONOMY. 

count, by which two modes we are aware that the bank issues notes. 
It is clear that such a course of action would achieve the desired 
end ; for, on the one hand, the issue of notes being stopped, the 
quantity already in circulation would not be increased. On the 
other hand, the commercial bills docketed at the bank successively 
falling due would each day cause the return of a considerable 
quantity, either of notes, which would proportionately diminish 
their circulation, or of coin, which would proportionately increase 
the reserve.^ 

The quantity of notes in circulation can be compared to a cur- 
rent of water which, entering by one tap and leaving by another, 
is constantly renewed. The flow of notes enters into circulation 
by the " issuing " tap, i.e. by discount, and leaves circulation to 
return to the bank by the tap of " entries." If the bank closes 
the issuing tap while leaving the other open, it is obvious that cir- 
culation will speedily be completely dried up. 

Let us suppose that the bank holds commercial bills to the value 
of ;£"40,ooo,ooo sterling, that its reserve amounts to ^40,000,000 
in coin, and that its notes in circulation come to the figure of 
;^8o,ooo,ooo. In such circumstances it is clear that if, in con- 
sequence of any unforeseen event, holders of notes were to come 
to have these changed for coin, the bank would be unable to do 
so. But, if it has reason to fear any such danger, its only step is 
to stop all discounting for the future. The actual way in which 
matters are done is as follows : As the bills of exchange, which 
it holds, successively fall due, it is bound to receive a sum of 
;2^4o,ooo,ooo, coming in day by day from that moment, till ninety 
days hence at the latest. After that time what will be its position ? 
If these ;^40,ooo,ooo have been paid in coin, its reserve in coin will 

1 It is, of course, to be remembered that advances may be made without 
notes being issued, and therefore may be stopped without notes being called 
in. See Professor Dunbar on " Deposits as Currency," Harvaj'd Quarterly 
Journal of Economics, July, 1887, and the paper by Mr. Inglis Palgrave on 
"Note-circulation" read to the Manchester Statistical Society, March, 1887. 
-J.B. 



PRODUCTION. 301 

then be ^80,000,000, or the very figure of its notes. In that case 
it will have nothing to fear. If the ^40,000,000 have been paid in 
notes, then its notes in circulation will be only ;£'40,ooo,ooo, the 
precise amount of its reserve. In that case, too, it need have no 
apprehensions. If the ;^40,ooo,ooo have been paid half in coin 
and half in notes, then its reserve will have been increased to 
;^6o,ooo,ooo, and its notes in circulation reduced to ^£"60,000,000. 
Again there would be nothing to fear, and the same with all other 
conceivable combinations. 

Nevertheless, this complete stoppage of all advances and of all 
discounting would be too radical a measure. On the one hand, 
by suppressing all credit it would cause a terrible crisis in the 
country ; on the other hand, it would damage the bank itself, by 
putting an end to its operations and sharing its profits. But the 
bank could bring about the same result, though in smaller propor- 
tions, by merely restricting the amount of its advances and of its 
discountings ; for that, it is enough either to raise the rate of dis- 
count, or to be more diffident as to accepting paper presented to 
be discounted, by refusing paper which falls due at too remote a 
date or the signature on which does not appear to be sufficiently 
reliable. 

It is scarcely necessary to say that this measure is not highly 
agreeable to the business public, and this disagreeable feeling is 
heightened by the fact that the step being taken just at the 
moment when there is need of coin, money is rendered more 
difficult to obtain. Nay, the bank may often be accused of having 
provoked a crisis, and such a complaint may be well founded. 
It is certainly a heroic remedy, but in spite of that it is certainly 
the step that best suits the situation, and a prudent bank should 
not hesitate to resort to it to defend its reserve. It is called " turn- 
ing the screw." Its efficacy has been fully shown by experience. 

Not only is it beneficial to the bank, by warding off the blow 
which menaces it, but it is also salutary to the country, by favor- 
ably modifying its economic situation. 

Take a country which is obliged to make considerable remit- 



302 PRINCIPLES OF POLITICAL ECONOMY. 

tances abroad. The rise in the rate of discount, effected av the 
fitting time, reverses its position, by rendering it the creditor of 
the foreigner for large sums, and consequently provokes an influx 
of gold from abroad, or at any rate prevents the efflux of the 
country's money. This is how matters pass : — 

The first result of the rise of the rate of discount is a deprecia- 
tion of all commej'cial paper. The same bill of exchange for 
;£iooo, which was negotiated for £,()"]0 when discount was 3 per 
cent, will, now that the rate of discount is 7 per cent, be nego- 
tiated for only ;!^930 j that is, a depreciation of more than 4 per 
cent. Henceforward bankers of all countries, those who practise 
arbitrage, will not be slow in coming to purchase this paper in 
France, since it is cheap, and they will thus become debtors of 
France for the sum total of the moneys they have devoted to these 
purchases. 

The second result is the depreciation of all stock exchange 
securities. Every financier knows that the stock exchange is 
greatly affected by the rate of discount, and that a rise in dis- 
count nearly always entails a fall in stocks ; for stock exchange 
securities (especially those that are called international, because 
they are quoted on the principal European exchanges) do duty 
for commercial paper, and therefore share its fate. If you have 
a payment to make in London, the simplest thing to do is to 
obtain commercial paper payable in London, but, that failing, you 
can equally well make use of Italian Debt coupons, Lombard Rail- 
way debentures, Ottoman Bank bonds, etc., which are also payable 
in London. Business men who cannot turn their commercial 
paper into cash, or can only do so at a heavy loss, try to obtain 
ready money by selling their stock. But just as the fall in the 
value of paper incites demands from foreign bankers, so, too, a 
fall in stock exchange securities causes numerous purchases by 
foreign capitalists, and under this head the country in question, 
say France, again becomes the creditor of the foreigner for the 
large sums spent in these purchases. 

Finally, if the rise in discount is great and sufficiently prolonged, 



PRODUCTION. 303 

it will bring about a third result, a fall in the prices of commodi- 
ties. Business men who are in need of money begin by procuring 
it through negotiating their commercial paper. That resource 
failing or becoming too expensive, they turn to all the stocks they 
have in their desks (that is to say, if they have any), and finally, 
if they are at the end of their tether, to obtain money they must 
realize, i.e. sell the goods they have in stock ; hence a general fall 
in prices. But this fall produces the same effect as the preceding 
falls, and on a larger scale ; i.e. it incites purchases by the foreigner, 
and consequently increases the exports of France, and therefore 
makes her the creditor of the foreigner. 

We may sum up all these effects by saying that the raising of 
the rate of discount creates an artificial scarcity of 7noney. We 
call it artificial, but it matches a reality, or at least an eventuality 
which tends to become realized, viz. the flight of coin to foreign 
parts. The disease is cured on homoeopathic principles, similia 
similibus. This scarcity of money may cause a general fall in all 
stock, — an evil, no doubt, — but it also provokes, as a conse- 
quence, considerable demands from abroad, and hence, remittances 
of money therefrom, which is a benefit, and the very remedy that 
suits the situation. 

XI. Some Special Forms of Credit. 

There are three of these, in particular, which have been the 
objects of innumerable studies, and which have given rise to 
various institutions, i.e. Land Banks, Agricultural Banks, and 
People's Banks. 

I. "Credit Fonder." 

In order to become productive, present-day agriculture needs 
larger and larger capital ; but landed proprietors do not always 
possess such capital and, through this lack, they do not draw from 
their land all the profit that they should. It would therefore be 
highly desirable, both in their interests and in the interests of the 
community, that they should be able to find the capital necessary 



304 PRINCIPLES OF POLITICAL ECONOMY. 

for drawing the full value from their land. This they should obtain 
from the credit fonder ("Landed Credit" or ''Land Banks"), 
which, if well organized, ought to furnish the desired capital. 

The simplest and most ancient form of credit on land is the 
loan on mortgage. From the lender's point of view, it presents 
a great advantage which has always made it much sought after 
by capitalists ; viz. its almost absolute security, land being a 
pledge which can neither perish nor be stolen. The sum total 
of mortgages on land in the whole of France is reckoned to 
amount to between ^520,000,000 and ^560,000,000 sterling, or 
15 or 16 per cent of the total value of all the landed property in 
France. In some countries the two amounts are almost equal. 

However, to counterbalance this advantage, the mortgage sys- 
tem has great disadvantages for both of the parties ; for the 
borrower, because he is burdened with excessively high charges, 
the rate of interest being rarely less than 5 per cent, whilst the 
income derived from agricultural improvements is often inferior 
to this rate ; for the lender, also, because although loan on mort- 
gage gives him full security for his money, it does not enable him 
to recover it easily. It is no simple matter to find any one to 
take up his claim, and even when the term has expired, he is too 
often obliged to resort to a measure which is as disagreeable for 
the creditor as it is lamentable for the debtor ; viz. eviction. 

To remedy this disadvantage a proposal has been made to 
render mortgage credits negotiable by means of endorsement, just 
as commercial claims and bills ; and this system, which has been 
sometimes incorrectly called mobilization of landed property, has 
been ingeniously organized in some countries. Thus in Germany 
the proprietor can of himself lay on his land mortgages which he 
negotiates according to his requirements, just as a banker who 
draws checks on his own account. In Australia, under the work- 
ing of the Torrens Act, mortgages can be just as easily transferred. 
For further details, see M. Challamel On the Modes of Mobilizing 
Landed Property, M. Worm.s, etc. 

It must be observed that this remedy only affects the creditor, 



PRODUCTION. 305 

and does not improve the position of the debtor, i.e. the proprie- 
tor. Further, it is exceedingly doubtful, as regards the mortgage- 
holding creditor himself, whether any system, however ingenious 
it may be, would allow him to negotiate this claim as if it were a 
commercial bill : that is contrary to the nature of things. A claim 
on mortgages will always participate to a certain degree in the 
nature of the land on which it is a lien. 

Another still more ingenious system consists in the institution 
of banks of a special nature, which are usually called " Land 
Banks" (Societes du Credit Foncier). These play the part of 
middlemen between capitalists and proprietors ; they borrow 
money from the former to lend it to the latter, and, although, as is 
obvious, they do not perform this service for nothing, yet they oifer 
certain important advantages for both parties. To the capitalist 
they supply claims which are solid as mortgage claims, inasmuch 
as they have the same guarantee, which can be far more easily 
negotiated, since the pledge is not such and such a particular 
piece of land, but the whole body of the funds of the society. For 
it is the society itself, i.e. usually speaking a powerful company, 
which issues the credit papers, and they circulate as readily as 
certificates of government stock or as shares or debentures in 
railway companies. To land proprietors they afford a triple ad- 
vantage : firstly, a loan payable at a distant date, for example 
seventy-five years ; secondly, a reimbursement which is effected 
little by little and in an almost imperceptible manner by way of 
annuity ; and thirdly, usually by a relatively moderate rate of 
interest. 

In France there is only one society of this kind, and it has 
maintained a monopoly since 1852, under the name of the " Credit 
Foncier de France." This great corporation lends for a period 
of seventy-five years. The interest is not much less than 5 per 
cent, but this rate comprises an annuity, which is calculated to 
redeem the capital within a period of seventy-five years, so that 
at the expiration of the term the landed proprietor is freed of all 
debt, having, meanwhile, paid a smaller interest than would have 



306 PRINCIPLES OF POLITICAL ECONOMY. 

been asked by an ordinary creditor. In spite of these ingenious 
combinations, the " Credit Foncier " has not been able to render 
very great services to agriculture ; the sum-total of the capital 
lent by it arises, indeed, to the imposing figure of nearly ;^i20,- 
000,000 sterling, but the greater part of this has been employed 
in building, and hardly a quarter has gone to country property. 

Without professing to lay down a general principle, we do not 
think that it is highly desirable to make the means of borrowing 
easier either for the small or for the large landowner : such a 
facility might bring him luck once, but might ruin him ten times 
oftener. Following an inverse tendency, we should be inclined 
rather to demand the adoption of certain measures, such as the 
Hojnestead Laws in the United States, which, by preventing a 
landowner from borrowing, insure to him and his family the safe 
possession of his land. 

In virtue of this law, every American proprietor who cultivates 
his land himself, can declare exempt from seizure his house, 
together with a certain extent of land round it, this varying 
according to the particular laws of the respective States. Some- 
times, too, this exemption is not optional and is obligatory, and it 
appears to us that it can only be efficacious under the latter cir- 
cumstance. Of course the proprietor is debarred from finding 
credit, at any rate within the limits of his homestead. A proposal 
has recently been made to introduce this law into England and 
into France ; its aim is easy to understand, viz. the conservation 
of the family hearth, and the continuance of small proprietor- 
ship.^ 

2. Agricultural Credit. 

At first sight agricultural credit seems closely to resemble landed 
credit, for the object of both is to supply funds to landowners. 
Still, it differs from the latter in a clear enough way, — in its eco- 
nomic aims, its legal character, and the form of the institutions 
which represent it. 

1 The followers of Le Play are probably in view. — J. B. 



PRODUCTION. 30;^ 

Its aim is to obtain for landowners, not precisely the capital 
which is necessary for their starting expenses, but the floating capi- 
tal which is required for the working expenses of cultivation. For 
it is in the nature of the agricultural industry only to give returns 
at the end of the year, or sometimes less often, while the expenses 
last throughout the year. The agriculturist, therefore, continually 
needs advances, and it is these advances that agricultural credit 
can supply. 

Its guaranties are not the land itself, as is the case with Landed 
Credit, but the working stock ; its only pledges are the raw mate- 
rial, the cattle, and the crops when once they have been got in ; 
to speak legally, it is a loan on movable and not on immovable 
property. 

In Germany and in Italy, agricultural credit is organized under 
the form of Mutual Loaii Societies, between landowners who make 
loans one with another, and thus avail themselves of the credit 
given them by this association to obtain loans from third parties 
on advantageous terms. The most famous of these societies are 
what are known as Raiffeisen Banks} and are of somewhat recent 
date ; their characteristic features are : firstly, that the members 
contribute no share to the society — it is therefore formed without 
capital ; secondly, they receive no profits ; thirdly, they are all 
jointly responsible on the security of all their effects. 

In France, however, agricultural credit is represented by no 
special institution, though such have frequently been talked of; 
in truth, there are none, and we only partially regret this lack. 

3. People's Banks. 

The well-known proverb, " Only the rich receive loans," is easily 
verified every day. Yet the poor also may have need of credit 
even more than the rich. But how can they obtain it? 

The problem is most easily solved by means of association. 
An isolated laborer or an artisan, however honest and laborious 

1 See English Blue Book on the " System of Co-operation in Foreign Coun- 
tries." (^Commercial, No. 20, 1886) pp. 36 and 63. — J. B. 



308 PRINCIPLES OF POLITICAL ECONOMY. 

we may suppose him to be, cannot offer a lender a substantial 
guarantee, for want of work, or death may at any moment defeat 
the best intentions. But if these workmen or artisans are lo, loo, 
or looo in number, then being united in a sheaf, and bound to- 
gether by the constraining bond of a joint obligation, they will 
present a broader surface, and can easily obtain credit without 
resorting to the tender mercies of usurers. Besides, their indi- 
vidual contributions, however small they be, from their very num- 
ber constitute a substantial enough common fund which they can 
lend to one another. 

It is especially in Germany, under the inspiration of Schulze 
Delitzsch, a man whose name will always be attached to this insti- 
tution, that these people's banks, otherwise called co-operative loan 
societies, have undergone an extraordinary development. More 
than 2000 of these banks are reckoned to exist in Germany, but 
there are no more than about 900 (the most important, it is true) 
the results of which are known. In 1887 they had a capital of 
their own of more than ;^6,6oo,ooo sterling, and a borrowed capi- 
tal of ;£20,5 20,000. Thus they could operate with a total capital 
of ;^2 7,000,000 to ^28,000,000. They borrowed at 3.81 per 
cent; they lent to their own members at 5.5 per cent, and also 
shared amongst them, in the shape of dividends, the profits thus 
realized. 

In France, however, in spite of several brilhant attempts (in 
particular the " people's banks " founded by Father Ludovic de 
Besse), this institution has never succeeded. Once more we find 
an easy consolation. Certainly such an institution may render some 
services to a particular class of society, such as small artisans and 
small shopkeepers ; all those, indeed, who work on their own 
account. But it has not great possibilities as regards the wage- 
receiving laborers, i.e. the bulk of the working classes ; therefore 
the name " popular " credit is not particularly well chosen. Usu- 
ally, when workmen resort to credit, it is to consume, not to pro- 
duce wealth ; what would they do with capital, since they are not 
called upon to work on their own account ? At the most, a few 



PRODUCTION. 309 

of them might be enabled to obtain the advances necessary for 
rising from being wage -receivers to the position of small employ- 
ers. This is clearly shown by the example of the German credit 
societies. Among their members, workmen, properly so-called, 
are only in the proportion of about 8 per cent ; small working 
artisans, traders, and shop-keepers amount to 5 7 per cent ; small 
farmers, to 2 7 per cent ; the rest are clerks, domestic servants, 
and people of small but independent means. 



THE QUESTION OF MONOPOLY OR OF LIBERTY OF BANKING. 

The question before us is, ought the legislator to interfere in 
the organization of banks, especially as regards the issuing of 
notes, and if he does so, within what limits and in what manner? 

We may consider this under two aspects, or rather, the question 
becomes subdivided into two questions : — . 

Firstly. Ought the legislator to reserve for one bank alone 
the privilege of issuing notes, or should the right be thrown open 
to all who care to use it ? This is the question of monopoly versus 
competition. 

Secondly. Ought the legislator to allow banks (whether one or 
several matters nothing) to issue notes ad libitum, or should this 
right be submitted to certain restrictions? This is the question 
of what is called the currency principle versus the banking principle. 

I. On Monopoly or Competition in the Issuing of Notes. 

Both systems and all the intermediate systems are in use in 
various countries. 

In France, monopoly is the rule. Every one knows the great 
establishment which bears the name of the Bank of France, and 
is aware that it alone has the right of issuing bank notes. 



3lO PRINCIPLES OF POLITICAL ECONOMY. 

A digression on the Bank of France may be not uninteresting. 

The Bank of France was founded by Napoleon while he was 
yet First Consul. It was actually founded in 1800, but its privi- 
lege of issuing notes dates only from 1803. Even then it could 
only exercise that privilege in Paris and in towns where it had 
established branches ; and consequently other banks in the chief 
provincial towns received the same privilege. But from the Revo- 
lution of 1848, when these departmental banks were merged in the 
Bank of France, it has enjoyed the exclusive privilege, which has 
already been several times renewed for periods of thirty years, and 
expires in 1897. According to a bill proposed by the government, 
the monopoly is to be again renewed till 1920. 

However, the Bank of France is by no means a government 
institution. It is a joint-stock company, like any other company ; 
but instead of being merely administered by its shareholders, it 
has a governor and a deputy-governor, who are nominated by the 
State. In exchange for its privilege of issuing notes it is subjected 
to certain special obligations. 

Firstly. It is only permitted to discount bills of exchange bear- 
ing three signatures, and drawn for ninety days after date at the 
latest. 

Secondly. It is not allowed to give interest on its deposits. 

Thirdly. It can make advances on stocks and securities, or 
on bullion ; but it is not allowed to be " uncovered " in its running 
accounts with its customers, except with the government. To 
the latter, on the other hand, it is obliged to make large advances. 

Fourthly. It cannot issue notes to a larger amount than 3,500,- 
000,000 francs. 

These obligations do not seem to be imperatively necessary, 
and they might probably be done away with without serious incon- 
venience. On the other hand, there is one obhgation that might 
very well be laid upon it : the bank should have to share its profits 
with the State, above a certain fixed limit. This clause requiring 
sharing of profits is already inserted in the charters of French 
railway companies ; it holds good for the Belgian and German 



PRODUCTION. 311 

banks. For it is just that every privilege should be paid for ; 
and no happier means of payment could be found than that 
the State, i.e. society as a whole, should share the profits accruing 
from that privilege. According to the bill referred to above, the 
bank will have to pay the government yearly a fixed sum of 
^100,000. 

To return to the banking systems in vogue in various countries. 
Contrary to the example of France, the United States adopts the 
method of competition. Every bank can issue notes, provided 
that it complies with certain conditions presently to be enu- 
merated. As a matter of fact, there are upwards of 2,000 banks 
that exercise this right. 

In England the system is a mixed one, and is somewhat com- 
plicated. The Bank of England has no exclusive privilege for the 
issuing of its notes, save in London, for there are several hundred 
provincial banks which also issue notes. Still, the system is not 
one of free competition, for the number of note-issuing banks is 
definitely limited. Those alone can enjoy the privilege which 
already exercised the right in 1844, the date of a famous law as 
to the organization of banks, which established the present situa- 
tion, and was due to the initiative of Sir Robert Peel. Moreover, 
these private banks are not immortal ; for they are destined to 
disappear one day or other, and thenceforward the Bank of Eng- 
land will possess the monopoly, de facto as well as de jure. In- 
deed, the number of provincial banks which issue notes has greatly 
diminished since 1844. 

It is impossible in this place to pass under review the organiza- 
tion of banks in all countries ; the reader is referred for further 
details to the works of Walter Bagehot, Mr. Goschen, and Sir 
John Lubbock. 

Now, which are we to prefer of all these systems ? The prin- 
cipal argument advanced in favor of competition is the classic 
argument that monopoly produces dearness, whilst competition 
causes cheapness. If the Bank of France had not the privilege, 
so it is said, the rate of discount would be lower, and the advan- 



312 PRINCIPLES OF POLITICAL ECONOMY. 

tages to be drawn from credit by commerce and industry would 
consequently be considerably greater. 

It may be replied to this, that it is by no means proved that 
competition necessarily means cheapness, or monopoly dearness. 
To that economic principle there are numerous exceptions, even 
in the production of certain commodities, and in this particular 
case the principle is of very doubtful application. For experi- 
ence does not appear to show that where there is a multiplicity of 
banks discount is lowest. 

Moreover, we might reply that the argument here advanced is 
beside the question; for the subject of monopoly or competition 
is not here discussed with regard to banks in general, nor, in 
particular, to discount. No one denies the right of every bank 
to discount ; not only is competition here de jure, but it exists 
de facto in every country, even in France. Not only private 
banks, but powerful companies with immense capital, compete 
with the Bank of France in discounting as well as in every other 
banking operation. Thus for the last eight years the rate of dis- 
count of the Bank of France has rarely exceeded three per cent, 
which is below that of the Bank of England. 

We are here only concerned with the question of the issuing of 
notes. Now, in this question commerce as a whole is far less 
interested than is the general public, and the only system to be 
preferred is that which offers most guarantees to the public, i.e. 
which gives most stability to the value of the bank note. In the 
eyes of the public the bank note is merely money. Now, when 
we speak of the issuing of money, no one clamors for free 
competition. The State reserves to itself the right of coinage ; 
if the State does not exercise this right, too, as regards the bank 
notes, it is perfectly justified in delegating it in some fashion or 
other to a single estabhshment which possesses its own and public 
confidence. 

Regarded from this point of view the Bank of France note has 
proved its mettle. For ninety years past, even in the most dan- 
gerous crises, it has never fallen below par. There is, therefore, 



PRODUCTION. 313 

for France at least, no serious reason whatever to hand over to 
free competition the issuing of bank notes, and the recent renewal 
of the privilege raised scarcely any opposition. 

Further, even granting that a multiplicity of banks does not 
always involve a depreciation of the notes, still it causes a highly 
inconvenient diversity of moneys, unless recourse is had to a sort 
of syndicate, as in Switzerland, or unless the State requires a uni- 
form type of note, as in the United States. On the other hand, 
there is reason to hope that, with a small number of great national 
banks, we might perhaps arrive at an international bank note, 
possessing currency in all countries, which would be the realization 
of a long-sought ideal, an universal money. 

II. As to Liberty or Regulation in the Issuing of Notes. 

Whatever opinion we may adopt as to the question of monopoly 
or competition, a further question remains : Ought the issuing of 
notes by these banks (whether one or many) to be left free, or 
ought it to be regulated ? 

But, first of all, is it within the power of the legislator to insure 
the payment of bank notes, and is there any system of regulation 
which can guarantee it? 

Three plans have been suggested, and all of them have been 
tried in different countries. 

Firstly. The first consists in requiring a certain proportion 
between the sum total of the reserve and the amount of notes in 
circulation. This is what is called the currency principle, the 
principle of regulated circulation, in opposition to the banking 
principle, or principle of the liberty of banks, which we will 
investigate presently. 

This is the regime that was laid on the Bank of England by the 
famous Act of 1844. According to the terms of this law, the bank 
can only issue notes up to the total of the cumulative amount of 
its reserve and of its capital. As this capital is ^^i 6,200,000 ster- 
ling, this means to say that the sum of notes issued can never 



314 PRINCIPLES OF POLITICAL ECONOMY. 

exceed the amount of the reserve by more than ;^ 16^000,000 
odd. 

To insure the better observation of this regulation, the Bank of 
England is divided into two distinct departments, one charged 
with banking operations, deposits, and discount, which cannot 
issue any notes, and the other entrusted with the issuing of notes, 
which can transact no banking business. The latter hands over 
its notes to the other department according to requirements, but 
when it has delivered over notes to the value of ^16,000,000 odd, 
it can henceforward only deliver notes in exchange for specie or 
bullion. 

Evidently this Hmitation could be not regarded as offering any 
really substantial guarantee in the case of any other bank than the 
Bank of England, for the capital of a bank is not always immedi- 
ately capable of realization, and in this case in particular we may 
say that the guarantee is purely fictitious. In fact, it is repre- 
sented (at any rate, up to the sum of ^11,000,000) by a mere 
claim upon the State, so that the ;£"i 6,000,000 worth of notes, 
which can be issued above the amount of the reserve, are only a 
kind of paper money. 

Further, in practice, and precisely in times of crisis, this limita- 
tion has been found to be so seriously inconvenient that already 
on three separate occasions it has been necessary to suspend the 
law, and to allow the bank to exceed the fatal limit. It is easy to 
understand that, if the bank happens to have ^20,000,000 of 
reserve, and ;^3 6,000,000 of notes in circulation, it will be obHged 
to refuse all discount. For with what could it discount the bills 
presented to it? With notes? But the limit of ;£"i 6,000,000 is 
already reached. With the cash it has in reserve? But if it 
reduces its reserve to ;£i 9,999,999, as the circulation of notes 
still stands at ;£"3 6,000,000, the law will be equally violated. 
However, the Bank of England cannot refuse discount without 
involving the bankruptcy of half the business men of England. 
The legislator, therefore, hastens, in these circumstances, to step 
in to remove the barrier he himself has raised. 



PRODUCTION. 315 

An analogous system has been applied in certain countries. 
Others have preferred to establish a fixed ratio, generally the ratio 
of a third, between the amount of the reserve and the value of 
the notes issued. The disadvantages are the same, and perhaps 
even greater. It is easy to prove that, with the fixed ratio of a 
third, not only discount, but even the payment of notes, may 
at any given moment be rendered impossible. Let there be 
;2^4,ooo,ooo of reserve and ^12,000,000 of issued notes. Evi- 
dently the bank cannot cash one note without causing the reserve 
to fall below the third of the sum total of the notes, for ^3,999,999 
is not exactly the third of ;£i 2,000,000. Thus the danger to be 
exorcised is actually brought to pass. 

Secondly. The second plan is simply to fix a maximum of issue. 

Without doubt this system is more elastic than the preceding 
one, and, as will be seen below (page 319), it has been resorted 
to in France since 1870, Its inconveniences, therefore, are less; 
but it must be confessed that it offers very few guarantees, for 
what does it matter that the bank can issue only a hmited number 
of notes, if it can reduce its reserve to zero ? How, then, is the 
public safeguarded? 

Thirdly. The third method is to compel banks lo guarantee 
the notes they issue by securities — usually certificates of govern- 
ment stock — which are at least equal in value to the notes. This 
is the system used in the United States. Each bank, in return for 
the notes it wishes to issue (and these, by the way, are handed 
over to it by the State, for the bank itself is not permitted to 
fabricate notes), must deposit as a guarantee certificates of gov- 
ernment bonds, of a higher value than the notes by one-tenth. 

This system is useful for strengthening the credit of a bank in 
normal times, but at critical epochs, just when the remedy should 
be the most necessary, it is worthless. For under such circumstances 
all stock, government securities included,^ are naturally depreciated 
in value ; and if, to satisfy demands for the payment of notes, the 

1 General Francis A. Walker remarks that the statement is not correct, if 
applied to the United States. 



3l6 PRINCIPLES OF POLITICAL ECONOMY. 

banks were obliged to realize the enormous amount of stock held 
as security, they would fail to succeed. Such an operation would 
only ruin the credit of the State, without raising that of the banks. 

It can thus be seen that, taking all in all, no one of the sys- 
tems hitherto conceived can guarantee the payment of notes. 
The only efficacious method would be to oblige banks always to 
keep a reserve equal, not only to the total value of their notes 
in circulation, but also to the amount of their deposits. Then, 
indeed, the guarantee would be perfect ; but then, alas ! banks 
would be of no further use, except to avoid the accidental losses 
or the wear and tear of coin, which would be a very minute utility. 
They would no longer utilize the floating capital of the country, 
for they would confine themselves to uselessly heaping it up in 
their cellars. They would no longer serve to economize money, 
for the bank note would henceforth have but a representative 
character. Finally, they would no longer be credit institutions. 
If we wish to use credit, we must resign ourselves to its disadvan- 
tages. It is a mere attempt at the squaring of the circle, to seek 
to combine at one and the same time the advantages of credit and 
of ready money, for the two are mutually exclusive. 

Must we, then, seeing that all regulation appears to be useless, 
if it be not irksome or dangerous, adopt the principle of laissez 
faire, and permit banks to issue notes after their own fashion and 
without control? Many writers do claim this liberty for banks, 
and their reasons are not without weight. 

The essential argument is, that there would never be grounds 
to fear an excessive issuing of notes. For, say they, the danger 
is chimerical ; the ordinary working of economic laws will restrain 
this issuing within due limits, even if the banks wished to overstep 
them, and the reasons for this are as follow : — 

Firstly. In the first place, bank notes are only issued in the 
course of banking operations ; that is to say, by discounts or by 
advances on bills. For a bank note, then, to enter into circu- 
lation, it is not sufficient for the bank to desire this entry ; there 
must also be some one who is disposed to borrow. Issues, there- 
fore, are regulated by the needs of the pubhc, and not by the 



PRODUCTION. 317 

desires of bankers. The amount of notes issued by the bank will 
depend upon the number of bills presented for discounting/ and 
the amount of these bills will depend on the state of business 
transactions. 

Secondly. Bank notes only enter into circulation for a short 
time ; a few weeks after issue, they return to the bank. We might 
say of them; in the words of Corneille, — 

" Ijejlux les apporta, le reflttx les remporte." 

Take a ;^ioo note which is issued in exchange for a bill of ex- 
change ; in forty or fifty days, or ninety at the outside, when the 
bank is able to cash the bill of exchange, the ;£ioo note will 
return to it. Probably it will not be the same note, but what does 
that matter? It returns for the same amount as it was issued for. 

Thirdly. Even granting that the bank may issue an excessive 
quantity of notes, still it will be impossible for it to keep them in 
circulation ; for if the note is issued in superabundant quantity, it 
will necessarily be depreciated ; as soon as it becomes depreci- 
ated, however slightly, the holders of notes will hasten to bring 
them to the bank to demand their payment. It will be useless, 
then, for the bank to attempt to inundate the public with notes ; it 
will fail in its endeavors, being in its turn flooded with the notes. 

These considerations certainly contain part of the truth, and 
experience has confirmed them on more than one occasion. 
Banks have never succeeded in forcing into circulation more notes 
than the public needs required. 

Still, we must not disguise the fact that absolute freedom of issu- 
ing may entail grave dangers, in times of crisis, if not at normal 
times. Now crises are very frequent occurrences in the economic 
life of modern societies. 

No doubt it is true that in theory the amount of notes issued 
depends on the demand of the pubHc, and not on the will of the 
banks. But observe, that if one bank alone seeks to attract cus- 

1 But see note above, page 300 [on fact that advances need not be of 
notes]. — J. B. 



3l8 PRINCIPLES OF POLITICAL ECONOMY. 

tomers and to compete with its rivals, it can always, by suffi- 
ciently lowering the rate of discount, succeed in largely increas- 
ing the extent of its operations, and consequently, also, of its 
issues. It is likewise true that the notes issued in excessive quan- 
tity by this imprudent bank will return to it for payment as 
soon as they become depreciated. But observe that this depre- 
ciation does not make itself felt immediately. It will only be at 
the end of a few days, perhaps a few weeks ; and, if, during this 
interval, the bank has issued an excessive quantity of notes, the 
day on which they return will be too late for it. It will no longer 
be able to pay them, and will be submerged under that ebb 
tide of circulation of which we just spoke. Certainly the bank 
will be the first to be punished for its imprudence, by failing. But 
how does that help us? Our business here is to ward off the 
crisis, and not to punish its authors. 

It is on this point that we find an argument for monopoly. 
There is reason to believe that a bank holding an eminent posi- 
tion in a country, and rendered strong by its history and by its 
traditions, will carry into the matter of the issuing of notes all the 
prudence that is desirable, and this of itself is the only really 
efficacious guarantee. Besides, experience confirms this way of 
regarding the matter in the case of all the great banks, and 
especially of the Bank of France ; for the latter, during its ninety 
years of existence, has allowed only one reproach to be brought 
against it — that of an excessive prudence — which has deprived 
its functions of part of their utility. At certain times the amount 
of its reserve has actually exceeded the value of the notes issued. 
Usually the issue of notes is greater than the amount of the reserve 
by not quite a fourth. Thus the balance of 1890 shows 2,850,- 
000,000 francs of notes in circulation, as against 2,481,000,000 
francs of coin in reserve, or ;^i 14,000,000 as against ;^9o,ooo,ooo 
sterling. Now the Bank of France has never been subjected to 
any regulation, so far as concerns the issuing of notes ; but for 
a short time past a maximum issue has been established of 
;^i 40,000,000 sterling, — by the new bill this is to be raised to 



PRODUCTION. 319 

;^i 60,000,000. Still, as was said above, this maximum is of very 
recent date. It did not exist in the statutes of the bank, and was 
only introduced by surprise, we might say, in the Law on Finance 
of 1883. It formerly obtained only in the case of forced currency. 
Again, this limit of a maximum is a precautionary measure, taken 
far less against the bank than against the State. It was not 
dictated by the fear of the bank abandoning itself to excessive 
issues, but by the fear of the government demanding from it 
excessive advances. 

Inversely, in the United States, where reigns the system of free 
competition, the legislator multiplies regulations on the right of 
issue. Not only must the banks, as we observed above, give 
as a pledge for the notes they issue a higher value of government 
securities, but they must also show that they possess a certain 
capital; they must keep in their safes in coin at least 15 per cent 
of the deposits confided to them ; they must always leave a certam 
sum in coin in the public treasury, etc., etc. 

To sum" up, we must choose between these two systems — 
either monopoly, with the most perfect freedom as regards the 
issue of notes, or competition, with severe regulations as to issues. 
In either case we must sacrifice some freedom, and, in our 
opinion, there is less to suffer from the first system than there is 
from the second. 



Part III. — The Equilibrium between Production 
AND Consumption. 

CHAPTER I. 
INSUFFICIENCY IN PRODUCTION. 

I. The Increase of Population; the Laws of Malthus. 

Will production be always sufficient for the wants of man? 
That is a problem which never ceases to be disquieting. 

We must consider that, on the one hand, the number of men 
constantly multiplies in virtue of the physiological laws of popula- 
tion ; and that, on the other hand, the needs of each man increase 
even more rapidly, perhaps, in virtue of the psychological laws 
we have already analyzed. Human industry, then, has always to 
satisfy this double progression ; that is to say, to furnish a share 
of wealth which must ever be larger for each sharer therein, 
whilst the number of those who are sharers is ceaselessly aug- 
mented. Will human industry always be able to satisfy these 
demands ? 

We know that Malthus, in his famous formula, affirmed that 
" population tends to increase in a geometrical progression, whilst 
the means of subsistence can only increase in an arithmetical 
progression " at the best. 

He expressed this double law in this double formula, which he 
only intended to serve to illustrate his argument, and which has 
been wrongly taken literally : — 

Progression of population, i, 2, 4, 8, 16, 32, 64, 128, 256 . . . 
Progression of production, i, 2, 3, 4, 5, 6, 7, 8, 9 . . . 
320 



PRODUCTION. 321 

Malthus calculated at twenty-five years the period of time which 
would on the; average elapse between two consecutive terms of 
these progressions. Thence he concluded that " at the end of two 
centuries, the population would be to the means of subsistence as 
256 are to 9 ; at the end of three centuries, as 4906 to 13 ; and 
after 2000 years, the difference would be immense, and almost 
incalculable." 

Thus, far from hoping that production would increase equally 
with consumption, he asserted that production would always 
remain behind, and far behind. His conclusion was that the 
equilibrium could only be re-estabhshed by a kind of systematic 
shearing down of the human species, effected by means of wars, 
epidemics, famines, misery, and other similar scourges, which 
appeared to him in the light of actual providential laws.^ Still, he 
dared to hope that in the future men would have the wisdom to 
forestall the action of these scourges and render them useless, by 
themselves limiting of their own free will the increase of popula- 
tion. Malthus advised them, for this purpose, to practise moral 
restraint ; that is to say, to marry as little as possible ; at any rate, 
as late as possible ; or at the very least, only to add to their 
families within the limits of their own individual resources. 

Although this doctrine of " moral restraint " may have highly 
immoral consequences, yet, in the way in which its author under- 
stood it, it perfectly deserved the epithet of ^' moral " ; and it 
would, therefore, be unjust to render Malthus responsible for the 
practices by which some of his disciples have sullied his doctrine 
and his name.^ 

In order, then, to maintain the equilibrium between the means of 
subsistence and the number of mouths to feed, he counted far less 
on the increase of production than on the limitation of population. 

1 In the sense in which the consequences of our own actions, good and 
bad respectively, follow from these actions by laws which are as truly ordered 
by Providence as is the sequence of effects from any other causes. — J. B. 

2 No doubt, as in the case of Robert Dale Owen, with the best intentions. 
-J. B. 



322 PRINCIPLES OF POLITICAL ECONOMY. 

Nearly a century has passed since the pubUcation of this doc- 
trine j and, up to the present, experience has failed to justify the 
pessimistic forecastings of Malthus. In certain countries, in spite 
of a rapid development of population, we have witnessed the 
production of wealth developing even more rapidly. Still, it is 
perhaps too early for us to reassure ourselves ; and the fatal law 
yet remains ever suspended, at any rate, in a menacing position, 
over the heads of the human species. 

The rate of increase of population in civilized countries may be 
reckoned as about i per cent (more exactly, 9 out of 1000), which 
corresponds to a period of doubling in 72 years, and is thus far 
inferior to that predicted by Malthus.^ Thus, the yearly increase 
for Germany, England, and Russia is respectively 9, 10, and 13 
per 1000 ; but it is less for some countries, especially for 
France, which is far in the rear. In this respect France is far too 
faithful to the doctrines of Malthus, for its yearly increase is but 
2 for every 1000.^ 

On the other hand, some countries show an infinitely more rapid 
progression. For a century past the population of the United 
States has doubled in every 25 years, and that of the Austrahan 
Colonies in less than 10 years ; the population of the United 
States was 4,000,000 in 1790, and about 62,480,000 in 1890; 
the population of New South Wales and Victoria was 29,800 in 
182 1, when they formed but one colony, and in 1888 was more 
than 2,000,000. But this enormous increase has been due to 
immigration far more than to the excess of births over deaths, and 
consequently is beside the question. 

Yet, even at this apparently moderate rate of i per cent, the 
increase in population would be literally awful, and would lead to 
almost inconceivable results. Granting that the population of the 
world, which is now calculated to be 1,500,000,000, were to increase 
I per cent per annum, it would reach 3,000,000,000 by the middle 

1 Malthus asserted tendencies ; but he made no positive predictions. — J. B. 

2 See Dr. Longstaff's Studies in Statistics (London, 1891), especially chap- 
ters V. and VI.— J. B. 



PRODUCTION. 323 

of the next century, and 48,000,000,000 about the year 2240; 
that is to say„ in only 360 years. A httle further prolongation of 
the progression would show that in about 800 years the whole 
earth would be as thickly populated as the environs of Paris, and 
that in 1200 years, which is really a short period in the history of 
the world, there would have to be one man for each square yard, 
which would not leave them room to live in or to move in ! 

No doubt it is perfectly certain that such results will not come 
to pass, but what causes will prevent them ? To know them would 
be to know the law of population, and we must confess that we are 
ignorant of that. However, biology has supplied us with a solu- 
tion, which, if proved, will be found to be a new contribution of that 
sister science. As XhQ fertility of any species appears usually to vary 
in inverse ratio to the development of the individuals of the species 
(for the lower species increase in infinitely larger proportions than 
do the higher animals, and man in particular) , — as in the human 
species itself the lower classes have generally more children than 
the picked classes, — and further, as there appears to be a physio- 
logical law which would seem to establish an antagonism between 
generative activity and cerebral activity, we may hope that the 
fecundity of the human species is destined to slacken progressively 
in proportion to the intellectual and moral development of the 
individuals that compose it. (See Herbert Spencer's Biology, 
and The Evolution of Sex, by Professor Patrick Geddes.) 

II. On the Limitation of Production in Agriculture, and the 
Law of Decreasing Returns. 

We have seen how threatening can be the increase in consump- 
tion ; let us now consider what we can hope from increase in pro- 
duction. We are aware that Malthus admitted that the means of 
subsistence could increase in an arithmetical progression ; but that 
is far too favorable a supposition. At present France produces 
about 100,000,000 hectolitres of wheat. Seventy years ago, in 
1820, the production was 50,000,000. Seventy years hence the 



324 PRINCIPLES OF POLITICAL ECONOMY. 

yield may perhaps be 150,000,000. But how can we be per- 
suaded into beheving that there will be a similar increase for each 
future period of seventy years? The supposition is altogether 
inadmissible. Moreover, the doubling of the production between 
1820 and the present day arises from two causes : the area of land 
sown with wheat has increased, and at the same time the yield per 
acre has been augmented. 

The production of a piece of land of given area is of course 
not unlimited. Not only does it not lie with the cultivator to 
increase indefinitely the elements capable of assimilation that the 
soil contains, but further, could he even, like the gardener with 
his pots, make altogether new an artificial plot of ground, it would 
not be within his power to cause an indefinite number of ears to 
grow upon a given area, or to give to each ear an indefinite num- 
ber of grains, or to hasten by one hour the time appointed for 
their coming to maturity. Vainly would it be replied, that by 
manuring or by more deeply ploughing the subsoil he can indefi- 
nitely enrich his plot. The depth of the stratum of earth in which 
the roots of plants can find nourishment is strictly limited, and so, 
too, is the quantity of natural and even of artificial manures that 
agriculture can employ. Indeed, some of the most indispensable, 
such as the phosphates, may be regarded as rare. 

Thus his power is absolutely limited by the biological laws 
which in a sovereign manner determine the constitution and the 
evolution of all living beings. Every creature, be it animal or 
plant, requires a certain space whence to obtain nourishment, and 
a certain time for its development ; and these two conditions are 
enough to shackle agricultural industry by a chain which manu- 
facturing industry has in a measure shaken off. 

Still everything induces us to believe that the limit is yet very 
far distant, for certainly the most improved agriculture of the pres- 
ent day does not utiHze more than a minute portion of the raw 
materials and natural forces that exist on a given area of land. If 
the steam engine is still so imperfect that, according to the calcu- 
lations of engineers, it uses only 7 or 8 per cent of the heat gener- 



PRODUCTION. 325 

ated by the combustion of coal, that machine which is called a 
potato field, a ^pasture land, a com field, is defective in a radically 
diiferent way ; and if agricultural science were as skilled as the 
science of mechanics in determining the theoretical returns, we 
might doubtless prove that the actual yield is not the hundredth 
part of what might theoretically be produced. 

The agriculturist can always, if he likes, increase the returns of 
the soil j but after having passed a certain stage in agriculture he 
can only do so at the price of a labor which co7ista7itly increases, so 
that a moment arrives when the effort required to increase the 
returns would be disproportionate to the result. 

Take an acre of land producing 20 bushels of corn, which is 
about the average for France. Let us suppose that these 20 
bushels of corn stand for 100 days' work, or, if it is preferred, for 
;^5 ; the proposition means that to produce on this land twice 
the quantity of wheat, or 40 bushels, we must spend mo7'-e than 
200 days' labor, or more than £10 in expenses. To double the 
product it will perhaps be necessary to triple, quadruple, or even 
multiply by ten the labor and the expense. This is called the law 
of decreasing returns {i.e. not proportionate to the labor) . 

It is certainly confirmed by every-day experience. Question an 
intelligent farmer, and ask him whether his land could not produce 
more than it yields. He will reply, " No doubt it would. The 
crop of wheat would be larger, were I to use more manure, plough 
deeper, clear the ground of the minutest dandelion roots, employ 
manual labor to break up the soil, dibble in, if necessary, every 
grain of seed by hand, protect the crop against insects, against 
birds, against parasite plants." " Then why don't you do so?" 
" Because I should not recover my expenses j that addition to the 
yield would cost me more than it would be worth." 

Thus in the production of any plot of land there is a point of 
equilibrium, which marks an impassable limit, not of course a limit 
which could not be passed if it were wished, but one that no one 
wishes to pass, because there is nothing to be gained by so doing. 

If the case were otherwise, if there could be an indefinite in- 



326 PRINCIPLES OF POLITICAL ECONOMY. 

crease in the production of a piece of land of given area, provided 
that the labor and expense were proportionately increased, land- 
proprietors, surely, would not fail to avail themselves of it. Instead 
of extending their cultivated areas over a more or less large do- 
main, they would restrict them to the smallest possible space : 
that would be far more convenient. But then the face of the 
earth would be utterly changed. The fact that matters do not 
pass in that fashion, and that we ceaselessly put under cultivation 
less fertile or less favorably situated plots, proves clearly enough 
that in practice we cannot expect more than a certain return from 
a particular piece of ground. 

Yet it is important to make three observations on this law. 

Firstly. This point of Hmitation is far from being generally 
reached, even in countries where cultivation is relatively advanced. 
Most landowners, either from routine or from want of capital, are 
still far below the limit, and in France there is assuredly a scarcity 
of agriculturists who could really hold the language attributed to 
them above ; i.e. who would not find more profit in increasing 
their production. There are millions of acres, not only in France, 
but even in England or in China, where the profit could be more 
than doubled by doubling the capital, and to which, therefore, the 
law of non-proportionate returns fails to apply. 

Secondly. This point of limitation is not invariable. It is 
determined by the state of knowledge at any given moment ; but 
provided that agriculture progresses and changes its methods of 
cultivation, the limit is ceaselesly driven up. The very landowner 
who to-day finds no profit in producing more than twenty bushels 
the acre, because the additional crops would not be worth the 
additional labor, will find it profitable half a century hence, if by 
then the labor and expenses necessary for production have become 
lowered by the invention of more powerful agricultural machines, 
or by the discovery of more fertilizing and less dear manures. 
And, if some day there be no means of further developing the 
production of corn, corn may perhaps be replaced with profit by 
some other more prolific or more nutritious plant. 



PRODUCTION. 327 

Now, kitchen-gardening turns the soil to far better effect ; it 
multipHes vegetables far more rapidly than corn or cattle when 
grown on a large scale, and can consequently produce a far greater 
quantity of food-stuffs. It is probable, then, that this will be the 
agriculture of the future, and that in a few centuries the whole of 
Europe will be like the environs of Paris and of other great towns 
at the present day. Countries beyond the sea would then supply 
what is now supplied by the provinces ; to wit, corn and meat, 
if indeed they are to be articles of consumption at that date. 
This kitchen-gardening requires nothing more than a great deal 
of manual labor and enough manure ; now these double conditions 
are perfectly satisfied by the great density of the population. Thus 
by means of an artificial soil, by artificial heat produced in hot- 
houses, perhaps by artificial light furnished by electricity, food- 
giving products may be in some manner manufactured de novo. 

Thirdly. Finally, even when the limit is reached by any par- 
ticular country, if there be still certain regions of the globe which 
have not yet attained to that condition, the latter may supply 
the former with whatever they may lack, provided that the means 
of transport are sufficiently improved and that trade can work 
freely. Under these conditions, the law of non-proportionate 
returns will only be slightly felt by the most thickly peopled coun- 
tries, for they will do what has already been practised by England, 
Belgium, and even France. Instead of trying to force the returns 
from their own territory, they will prefer to send for a part of, if 
need be all of, their means of subsistence, from still new countries 
which can produce food in superabundance. To be able to obtain 
this by exchange, they will only need to produce manufactured 
goods ; and since, as we are on the point of seeing, the law of 
non-proportionate returns does not apply in the least to the manu- 
facturing industry, the older countries will be able to obtain food- 
stuffs in as large quantities as they may wish. 

Nevertheless this resource can be merely provisional, for in 
order to supply the deficiency in some countries there must be a 
surplus in others. Now, when these latter are in their turn equally 



328 PRINCIPLES OF POLITICAL ECONOMY. 

peopled, they will no longer have any excess of food to dispose of. 
All that we can say is, that, as these uncultivated or barely cultivated 
countries, which are the reserve fund of the future, still cover the 
larger part of the globe, our provisional resources will last for 
several centuries. 

III. On the Limitation of Production in Other Industries. 

There are some industries which are even worse off than agri- 
culture ; not only are we unable to indefinitely increase the pro- 
duction of these, but we cannot even hope to maintain their 
present production for an indefinite period. Among them rank 
the extractive industries. At present as much coal as one likes 
can be taken from the mine, but a time will come when there will 
be none left, and already England is calculating with dread the 
number of tons that remain for her to burn. 

It is the same with other industries which are commonly classed 
as extractive, such as hunting, fishing, and the opening up of 
forests. The first of these, which holds so prominent a place in 
primitive societies, has now disappeared from the list of productive 
industries, at least in civilized countries, for the excellent reason, 
that in spite of the severe regulations in force, it has ceased to 
yield remunerative returns. Even in the deserts, even in the 
solitude of the Poles, the spoils of elephants, ostriches, beavers, 
otters, and whales are beginning to fail the explorers who seek 
them there. The exhaustion of the seas which bathe our shores 
is an endless source of lamentation for our sea-faring population, 
who are already obliged to fish on the high seas, and to provide 
stronger boats. Finally, the disappearance of forests, and conse- 
quently of working in wood, would already be a fait accompli in 
Europe were it not for legislative intervention. 

Yet although this approximate exhaustion is the fate reserved 
for the extractive industries, we are able to delay it for a time by 
changing their methods of procedure. Instead of hunting the 
ostrich, we can rear it ) instead of fishing, we can practise pisci- 



PRODUCTION. 329 

culture ; instead of clearing away forests, we can sow new planta- 
tions. In fine, we can transform these extractive industries into 
agrieultural indnstvies, though they will consequently be subjected 
to the same law as the latter. 

There are other industries which are more favored than agricul- 
ture, and which completely escape the law of decreasing returns. 
The nature of the manufacturing, commercial, and transporting 
industries exempts them from the working of such a law. Not 
only have they no reason to fear that their expenses will increase 
in a higher proportion than their production, but, on the contrary, 
their general expenses decrease in direct ratio to the expansion 
of their output. Their fear is not of being able to supply the 
demands of consumers, but of producing over and above the re- 
quirements of consumption. Indeed, this is one of their greatest 
cares ; for at the present day manufacturers are somewhat fre- 
quently obliged to concert together to restrict their output within 
certain limits, so as not to cause a glut in the market. Such 
agreements are called "Trusts." 

As a proof that manufacturing industries are burdened by no 
law of limitation, we may adduce the example of English cotton 
spinners, who produce as many yards of cotton stuffs as would 
gird the terrestrial globe 120 times; 5,000,000,000, to be exact. 
Nothing would prevent them from making enough cotton goods to 
clothe the whole globe with, if only they were able to dispose of 
them. It is sometimes urged in objection that commercial or man- 
ufacturing industry is itself limited by the limitation of markets ; 
for a manufacturer cannot always develop his production, and 
at the same time find new customers ; a railway company which 
increases its communications too quickly is liable to a diminution 
in its profits. That is an extraordinary confusion of thought. Our 
question is, whether industry is able to constantly keep up with 
increases in the demand, and we are given cases in which produc- 
tion exceeds this demand ! 

There is, then, a complete contrast between the two great 
branches of production, and it is easily explained by the natural 



330 PRINCIPLES OF POLITICAL ECONOMY. 

difference between these two forms of human activity. The part 
played by the agriculturist is, so to speak, merely passive ; he has 
to look on Nature doing her work according to laws that he 
scarcely knows, and which he cannot alter. He has to wait 
patiently for long months before the seed slumbering in the furrow 
is transformed into the ear, and long years before the acorn be- 
comes the oak. The manufacturer, on the other hand, effects on 
matter transformations which are usually simple, and of which he 
at any rate knows the laws. His auxiliaries are housed and 
tamed, and work under his orders with the precision of automata. 
He is not bound in by the inexorable cycle of the seasons ; day 
and night, summer and winter, his furnaces can glow and his 
looms can turn. 

Yet it would be a mistake to imagine that the productive power 
of manufacture is altogether unlimited ; first of all, as it can 
obviously only work on the material supplied it by the agricultural 
and extractive industries, it is in a measure bound up with them, 
and thus by reaction is subjected to the law of their limitation ; 
and further, it is evidently once more limited by the amount 
of labor and of capital that it has at its disposal. 

IV. How Limitation of Production affects Prices. 

If the working of these laws of decreasing returns be accu- 
rate, they should have a double practical consequence, which 
would easily verify them. They ought to involve, on the one 
hand, a constant rise in the price of natural, and particularly of 
agricultural, products ; on the other hand and inversely, a con- 
stant fall in the price of manufactured goods and in the cost of 
transport. 

Now this double phenomenon is manifested in all European 
societies, and in a striking enough way to excite the attention of 
all but the least experienced of observers. There is no housewife 
in France who has not made moan over the constant increase 
in price of all market produce, — meat, poultry, fish, game. 



PRODUCTION. 331 

butter, eggs, vegetables, fruit, etc., — that is to say, of agricultural 
produce. , 

The rise would be even greater than it is, were it not for the 
increasing improvement in means of transport. Just as the law 
of decreasing returns tends to raise the price of agricultural 
produce, so are prices lightened by the fall in the cost of trans- 
port. Here, then, is the explanation of the fact that corn, the 
most important of all agricultural products, does not appear to 
have sensibly increased in price during the last twenty years ; 
for, as we know, the law of decreasing returns is, so to speak, 
suspended every time that a country can obtain from abroad the 
additional food supphes that it may need. The only proviso is, 
that the conveyance of these articles of food is not too difficult. 
Corn meets our point ; for, though cumbrous enough, it is easy to 
convey. If the transport of meat, whether as livestock, or in a pre- 
served state, were to become equally easy, the law of non-pro- 
portionate returns would be likewise suspended as far as regards 
this product, and the price of meat would become stationary. 

The fall in price of manufactured goods is no less evident, and 
it would be a waste of time to adduce unnecessary figures. Think 
only of made-up dresses, linen, paper, glass, books, and in a word, 
of all modern goods. There are only two exceptions, and these 
are not difficult to explain. 

Firstly. Certain articles of luxury (lace, art-furniture, etc.) do 
not share in this fall of prices, for they are usually more or less 
works of art, and thus do not benefit by the economic advantages 
of wholesale production and of machinery. 

Secondly. Some others, too, fail to reap any benefit because 
raw material represents the greatest part of their value. Now as 
this raw material can be none other than a product of agriculture 
or of some extractive industry, it falls under the working of the 
law of non-proportionate returns, and necessarily reacts upon the 
industry which uses it. It is clear that the price of table-plate 
depends on the price of silver, the price of flour on that of corn. 
Similarly, although in slighter measure, the rise in price of an 



332 PRINCIPLES OF POLITICAL ECONOMY. 

agricultural product, such as wool or leather, may stop or slacken 
the fall in price of manufactured goods, such as cloth or shoes. 

An important correction must be made in these statistical ob- 
servations on the variations in prices. We must allow for the de- 
preciation of money. It is clear that, as this is shown by a general 
rise of prices, it must exaggerate the rise in value of agricultural 
produce, and inversely must conceal a portion of the real fall in 
value of manufactured goods. It may be paralleled by what 
occurs when we travel by train. The speed of our own train 
diminishes in our eyes the speed of the trains that pass in the 
direction in which we are going, and inversely increases the speed 
of those that are going in the opposite direction. 

If we calculate that the price of any agricultural product, which 
sold for I shilling in 1848, is now 2 shillings, we must beware of 
saying that its value has doubled ; but knowing that 2 shillings 
to-day are not worth more than i shilling and 6 pence thirty years 
ago, we should say that the value of the article has really increased 
only 50 per cent. Inversely, if a manufactured commodity, which 
was sold for 4 shillings in 1848, is now sold for 2 shilhngs, we 
must not only say that its value is less by a half, but knowing that 
I shilling now would be worth only 9 pence in the money of those 
days, we must add that the value of this article is really lowered 
by 63 per cent. 

The experimental verification given above is especially striking 
when we compare a new country, whose production is in its infancy, 
as regards both agriculture and manufactures, with an old country, 
whose dense population has forced production to develop on a 
large scale. In the Western States of America, or in Australia, 
there is a complete contrast between the extreme cheapness of 
agricultural produce and the dearness of manufactured goods. 
Food costs very little, but clothes and housing cost a great deal. 
Thus the table of the humblest workman is abundantly supplied, 
whilst the wardrobe and the furniture of even the wealthy is 
exceedingly simple. In old countries matters are the other way 
about : with us expenditure on clothes and furniture makes up 



PRODUCTION. 333 

only lo or 15 per cent of the workman's budget, whereas food 
stands for 60 per cent. 

The result is that the law under discussion has most serious 
effects on the condition of the poorer classes of society. It en- 
hances the dearness of the articles that are the most useful to 
them, those they cannot dispense with, and that hold the chief 
place in their consumption. On the other hand, it cheapens 
only those things that are of the least importance, and that absorb 
only a small portion of their budget. Modern industry, therefore, 
should direct all its efforts of discovery and invention to the case 
of the production of articles of subsistence. Unfortunately in that 
quarter it has hitherto made the least advances. Agriculture lags 
far behind manufacture, and we know the reason why. 



CHAPTER II. 
EXCESS IN PRODUCTION. 

I. How to maintain the Equilibrium between Production 

and Consumption. 

Not to produce enough is an evil. To produce too much is 
also an evil, and, though less serious than the former, it is still a 
grave ill. For all excess in production necessarily involves not 
only a waste of wealth, but also a useless throwing away of forces 
and of pain, and may even bring along with it those disorders 
which are called crises. The state of health for the social body, 
just as for all living bodies, consists in an exact equilibrium be- 
tween the forces of production and the forces of consumption. 

In every prosperous society this equihbrium exists, and is pre- 
served in a more or less stable manner, but, we must ask, in virtue 
of what law ? 

If, like Robinson Crusoe on his island, each man produced for 
himself all that he needed to consume, there would be nothing 
surprising about this phenomenon, for each one of us is in a cer- 
tain measure able to forecast his wants ; and, though his predic- 
tions may sometimes be erroneous, he is able to regulate his 
production thereby. 

Nor would the circumstance be surprising if, even under the 
working of division of labor, each consumer were to inform the 
producer in advance of what he required, and if each producer 
worked, as the saying is, to order. 

But it must be observed that in our actual societies nine-tenths 

of consumers come to the market without having troubled to make 

their wants known in advance, and that similarly nine-tenths of 

producers bring their goods to the market without having waited 

334 



PRODUCTION. 535 

for any demand. Yet in spite of this absence of any prior con- 
cert, the equiUbrium between production and consumption is 
usually preserved in a satisfactory enough fashion. No doubt it is 
often disturbed. As we shall soon see, instances of deficiency or of 
excess are frequent ; but in the end, after a series of more or less 
sharp oscillations, the beam of the balance always tends to return 
to a normal position. 

This, indeed, is the favorite example cited by all economists, 
who, like Bastiat, endeavor to prove the existence of a spontaneous 
order, of a pre-established harmony in all economic relations. 
Perhaps they show their pleasure in rather too exuberant a man- 
ner ; nevertheless it is true that in great cities, such as London 
and PariSj every day milhons of inhabitants are sure of finding 
all they want (that is to say, those who can pay for it) ; and if we 
consider that this equilibrium is spontaneously maintained through 
the length and breadth of a vast country, without any prior 
arrangement, without the intervention of any directing authority, 
if we observe further that probably the best organized government 
would be unable thus to supply a great nation with means of sub- 
sistence from day to day, if we can judge of it by the difficulty 
experienced in provisioning a few army corps, we cannot neglect 
the fact that here there is a phenomenon which is well worthy of 
our attention. 

Yet its explanation is simple enough. The law, which con- 
stantly re-establishes the momentarily disturbed equilibrium be- 
tween production and consumption, is that which we have already 
observed regulating the distribution of workers among the various 
branches of production ; it is the law of supply and demand ; it 
is the law of values, which we expressed in the following formula : 
*' Things have more or less of value, according as their quantity 
is more or less insufficient for our wants." 

Whenever, then, any commodity is seen to have been produced 
in greater quantity than is required, its value will fall. The result 
of the fall in value will be to reduce the income of producers, and 
in particular the profits of the employer, who is the principal 



33^ PRINCIPLES OF POLITICAL ECONOMY. 

agent in production, and who consequently is directly affected by 
all reactions. Naturally he will step back from a path on which 
he experiences miscalculations and losses, and the production of 
the commodity will be slackened, until the quantity produced has 
fallen back to the level of the quantity consumed. 

On the other hand, whenever any commodity has been pro- 
duced in less quantity than is required, its value will rise. Similar 
consequences will be produced to those just explained, but in an 
inverse direction ; that is to say, producers, and the employer in 
particular, will realize larger profits. Attracted by the bait of these 
profits, which are above the normal rate, other producers, whether 
capitalists or workers, will enter on the same path. The pro- 
duction of the commodity will then increase till the quantity 
produced has risen to the level of the quantity demanded. 

II. Crises. 

This equilibrium between production and consumption is subject 
to derangement, and that not unfrequently ; whenever a rupture 
of equilibrium is thus produced, we say that there is a crisis. 
These crises are literally the maladies of the economic organism ; 
their features are as varied as those of the innumerable illnesses 
that afflict mankind. Some have a periodic character ; others are 
totally irregular. Some are short and violent, like attacks of fever ; 
others are slow " like anaemia," to use M. de Laveleye's phrase. 
Some are localized in one specific country ; others are epidemic, 
and rage through the world. 

Some economists have attempted to construct a general theory 
of crises by describing the laws which regulate them. This 
attempt has been made in a very ingenious manner by Stanley 
Jevons, who minutely described the characteristics of crises, and 
concluded that they were reproduced periodically every ten years. 
In fact, from the beginning of the present century, he reckons 
nine crises: those of 1815, 1827, 1836, 1839, 1847, 1857, 1866, 
1873, 1S78. Yet, as crises are great or small, general or local, it 



PRODUCTION. 337 

is easy to count few or many, and to choose dates to suit your 
theory. Of those confined to England, there have been at least 
fifteen ; and of those which have spread over the whole world, 
there are really scarcely more than three : those of 1825, 1847, 
1857, and the latest, which started in 1878 and lasted ten years. 
According to Jevons, this ten-yearly periodicity would seem to 
correspond to a similar periodicity of bad harvests ; and the cause 
of this appears to be a decennial periodicity in the spots on the 
sun. In this manner the question of crises, their causes and their 
development, would be reduced to an astronomical problem. The 
picture is briUiant, if not convincing. Other writers on this are 
de Laveleye, The Mofiey Market and its Crises, and Juglard, Com- 
mercial Crises and their Periodic Recurrence} 

In spite of the premature nature of these attempts, it is possible 
to discover in crises certain common characteristics, and to refer 
them in particular to one and the same cause; namely, as said 
above, a rupture of equihbrium which happens to be too sharply 
effected either in the production of a large number of commodities, 
or in the production of some wealth which is particularly impor- 
tant from an economic point of view ; such as corn, capital, me- 
tallic money, or credit papers. In each of these cases, which we 
now propose to pass under review, the loss of equilibrium may be 
shown in the shape either of a glut or a deficiency. The second 
would seem to be far the more formidable of the two ; yet it is 
the former that is the most dreaded (except when money is the 
article), and the only one which is usually termed a crisis. 

Firstly, glut or scarcity of commodities. A general glut of 
commodities is one of the most usual forms of economic crises, 
and may be regarded as a kind of chronic malady or constitu- 
tional infirmity attaching to modern industry. The development 
of wholesale production, mechanical inventions, and improved 
means of communication have enabled industry to throw upon 
the market such enormous masses of products that the consump- 

^ Also Max Wirth, Geschichte der Handehkrisen (4th ed., 1890). — J. B. 



338 PRINCIPLES OF POLITICAL ECONOMY. 

tion is not large enough to absorb them as they come into the 
market. This is not because men's wants are not large or in- 
definitely extending, but because to find a sale for an article 
requires not only people who would like it, but also people who 
are able to acquire it. Now, the increase in income of the bulk 
of the population has not usually been as rapid as the increase in 
manufacture. 

It is on this point that the collectivist school rely entirely for 
their explanation of these crises, which, according to them, are 
destined to multiply until they bring about the complete ruin of 
modern industrial organization. The working-classes, say they, 
are robbed by the capitalists of about half the produce of their 
labor, and therefore, with the wages they receive, are unable to 
buy back the produce of their labor ; hence the glut. Were they 
given what is due to them, and their powers of consumption thus 
made equal to their powers of production, there would be no 
more crises. 

This explanation seems inadequate ; for, even granting the fact 
of spoliation, nevertheless it would only mean a transferrence of 
the power of consumption from one class to another, and it is not 
clear why the robbers should not consume as much as the robbed. 

To proceed : most countries nowadays seek to close their mar- 
kets to foreign products, at the same time trying to introduce their 
own products into other lands ; and such goods, driven back here 
and kept out there, tend to accumulate, as if in tapless reservoirs. 
In order to succeed in finding an opening for their products, 
and to have them gradually absorbed by consumption, producers 
are therefore obhged to lower their prices ; this general deprecia- 
tion of prices has, as inevitable consequences, lowering of profits, 
and failures, on the one hand ; lowering of wages, and the throw- 
ing out of work, on the other hand. 

In the inverse shape of a scarcity, the crisis may sometimes be 
very formidable ; for instance, we can recollect the disasters caused 
by the cotton famine, which resulted from the Secession War in 
the United States. A bad harvest of cereals may bring about 



PRODUCTION. 339 

public disasters in poor countries such as India and Algeria ; and 
even in rich countries, like the countries of Europe, however 
slight the deficiency, it always provokes some sort of crisis. 

It often happens that this crisis from an insufficiency of produc- 
tion may indirectly produce the same effects as a crisis from 
excess of production ; namely, a general glut on the market and a 
depreciation in the value of commodities. However paradoxical 
it may seem, this assertion is easily explained. For a deficiency 
in the corn crop causes a rise in the price of corn ; hence all con- 
sumers of corn whose means are hmited, i.e. by far the greater 
part of mankind, are obliged to restrict their expenses on all the 
other articles of their domestic budgets. Hence a mass of goods, 
being no longer in demand, cannot find a sale, or at best are only 
sold at a loss. In this manner famines in India almost inevitably 
produce a crisis for English manufacturers. 

Secondly, glut or dearth of capital. Capital, too, is an article 
which may cause certain dangers, if it is produced in excess. 
No doubt we could not have too much capital, just as we 
could not have too much of commodities in general ; but, as 
at any given moment there may be too large an amount of 
goods to be consumed, so, too, there may be too much capital 
to be profitably used. In an old country, where saving is active 
and rolls up in snowball fashion, and which has been thoroughly 
worked for long centuries past, and therefore cannot offer an 
unbounded field for new savings, capital tends to accumulate in 
huge quantities. Naturally, in consequence of this abundance of 
capital, interest falls, and men busy themselves to find more pro- 
ductive investments ; new enterprises are floated either abroad 
or at home, some of them of a singular nature, some altogether 
foolish, and finally there comes what in stock exchange language 
is called a " crash." Some of these have acquired a momentary 
renown in our financial history, such as the Overend Gurney crash 
in 1866, the Vienna crash in 1873, ^^^ the Paris one of 1882. 

However, we must draw this distinction between commodities 
and capital : a glut of commodities depreciates the value of goods 



34Q PRINCIPLES OF POLITICAL ECONOMY. 

and ruins producers, whereas a glut of capital raises the value of 
capital and enriches capitalists. This result, though singular at the 
first sight, is not hard to account for. The fall in the rate of inter- 
est changes the rate of capitalization for the future, and already 
invested capital necessarily profits thereby. Let the rate of inter- 
est be supposed to be 5 per cent ; a security, then, which yield.. 
;^50 is worth ;^iooo ; but suppose that to-morrow, in consequence 
of a glut of capital, the rate of interest on new undertakings falls to 
3 per cent. Then the security which gave and still gives jP^^o 
will be worth more than ;^iooo, as a simple rule-of-three sum 
would easily show. There is still this curious contrast, that, whilst 
traders lament at the glut of goods, capitalists rejoice at the glut 
of capital, though indeed a crash is not slow in causing quite 
other feelings. 

Capital may also fall short of requirements in consequence of 
such crashes as those we have just spoken of, or after a war which 
has swallowed up large quantities of it. In this case there will be 
a crisis, but one marked by opposite symptoms to those set forth 
above ; viz. by a rise in the rate of interest and of discount, and 
by difficulty in obtaining money. 

Once more, there may be a disturbance of the normal propor- 
tion which ought to exist between fixed and circulating capital, 
the circulating capital being of insufficient amount relatively to the 
fixed. This has happened in some countries which have been so 
imprudent as to devote all their savings to the construction of rail- 
ways, and have thus not had a farthing to spend on the develop- 
ment of their industries and of these very railway lines. 

Thirdly, excess or dearth of coin. Must we here, too, speak of 
a crisis caused by excess? The general public will not allow 
that the fact of having too much money can constitute a crisis, 
and even some economists do not readily admit that we can talk 
of superabundance when speaking of money. 

However, it is undeniable that there is a certain proportion 
between the amount of money which ought to be in circulation in 
a country and the needs of that country, and that if this quantity 



PRODUCTION. 341 

is suddenly increased a crisis will result, which will take the form 
of a general rise of prices, and will have very serious consequences 
for all consumers, and particularly for creditors and persons living 
on a fixed income. 

All that we can say is, that it is the easiest thing in the world 
for a country to get rid of its excess of money, if it ever reaches 
such a position, and that the very force of circumstances aids in 
that task. 

Every one will agree in recognizing that an excess of money 
may cause a crisis of a most dangerous kind, if this money is in 
the form of paper money, or even of bank notes. But we need 
not return to this, for we have already shown the causes of such a 
crisis and the means of preventing it. 

On the other hand, a diminution in the quantity of money 
always occasions the greatest alarm. This dreadj no doubt, is 
partly occasioned by certain preconceived opinions as to the part 
played by money ; yet we have several times shown that such 
fears are not without foundation, and M. de Laveleye (zJide op. cit., 
pages 105, 117, 118) regards this circumstance as the only essen- 
tial cause of all crises. When the balance of trade has long been 
unfavorable to a country, and its reserve of coin is not large, a 
time comes when it has no longer enough money. Then the bank 
reserve diminishes, the exchange becomes unfavorable, the rate 
of discount has to be raised, and many merchants, being unable 
to meet their engagements, become bankrupt. These are called 
monetary crises. They are the most dangerous of all, for they seem 
in the highest degree to possess an epidemical character, but they 
are also those that have been the most thoroughly studied : their 
approach can be the most easily foreseen, and therefore can be 
the most successfully forestalled. 

III. Is there Reason to Fear too much Production? 

The question asked in the title appears a strange one after what 
we have stated in the previous chapter \ namely, the frightful in- 



342 PRINCIPLES OF POLITICAL ECONOMY. 

crease in consumption, and the difficulty production has in coping 

with it. 

Yet the possibiUty of an excess of production, of a general glut, 
is a nightmare that haunts the minds of all business men. The 
feehng is not hard to understand. Since every producer immedi- 
ately sees that his goods sell the better the scarcer they are in the 
market, he naturally concludes that scarcity is a good and abun- 
dance an evil. 

Economists have long tried to prove to them that the multipli- 
cation of products is a good, not only for consumers, but also for 
the producers themselves. Of course they do not profess to show 
that there may not be an excess in production relatively to the 
requirements in any given industry, or that such excess should not 
be regarded as an evil. That would be to act in flagrant contra- 
diction of the facts studied in the last chapter. But given a glut 
in one branch of production, economists consider that the best 
remedy for the ill is to bring about a proportionate increase in 
the other branches of production. The crisis arising from abun- 
dance should naturally be cured by abundance itself; similia 
similibiis, as the homoeopaths say. Thus all producers are in- 
terested in making production as abundant and as varied as pos- 
sible. This theory is known as the law of markets {la theorie des 
debouches). It was first promulgated by J. B. Say, who was 
extremely proud of it, asserting that " it would change the face 
of the world." It may be expressed as follows : " The more abun- 
dant and varied products are, the more markets do they find." 

Although this assertion seems to savor strongly of a paradox, it 
is nevertheless well founded. In order to understand it we must 
eliminate money, and suppose that products are exchanged first- 
hand for products, as is done under the system of barter. Besides, 
this abstraction is a perfectly legitimate one to make, for, as we 
have seen, no one exchanges products for money except to ex- 
change, sooner or later, this same money for other products, and 
thus the instrument of exchange can be justly ehminated from the 
operation in the mind's eye. 



PRODUCTION. 343 

Let us take a trader who arrives at one of the great markets of 
Central Africa, say at Rhadames or at Timbuctoo. Is it not to 
his advantage to find the market as well stocked as possible with 
products in large numbers and of great variety ? No doubt he has 
no desire to find large quantities of the very commodity that he 
has to offer, — say muskets, — but it is to his interest to find as 
much as possible of all the rest — ivory, gum, gold dust, arachides, 
etc. Each new commodity which appears in the market repre- 
sents an investment, or, as this theory says, an outlet for his own 
article ; the more there are of them, the greater the value of his. 
And, even if he has the ill luck of having brought too many guns, 
what he should wish for is that others should also have brought 
too much of their goods to this market. In that case the markets 
will no longer be in excess relatively to the other goods, for as 
J. B. Say admirably says, " What can best favor the sale of one 
article is the production of another." 

The same takes place under the system of sale and purchase. 
Each of us has the more chance of disposing of our goods or of 
our services, the greater the resources of all the rest ; and the 
more they have produced, the greater their resources will be. 
The heart's desire of a producer who has produced a commodity 
in excess is that all other producers should have respectively done 
the same. The excess of some will correct the excess of others. 
Has England produced too much cotton stuffs ? If by good luck 
India has grown too much corn, in that country England will more 
easily be able to dispose of her cotton. 

Thus, thanks to the prodigious increase of its mechanical 
resources, industry throws upon the market a huge mass of 
goods. The result is a general glut. But why ? Because agri- 
cultural production has not marched pari passu. Its produce has 
only increased in a shght degree ; its value has risen, compared 
with the value of manufactured goods. Hence consumers, who 
are obhged to spend far more on the means of subsistence, have 
no longer enough wealth to buy much of manufactured articles ; 
but, were agricultural production ever to progress equally with 



344 PRINCIPLES OF POLITICAL ECONOMY. 

manufacturing production by machinery, equilibrium would be 
speedily re-established. For, as the consumer would spend less 
on food, he would easily absorb the excess of manufactured 
articles. 

Lastly, let us suppose that all products, without exception, in- 
crease in quantity ; it may still happen that prices may fall and 
that there may be a general glut. What is the explanation ? that 
on our hypothesis one product alone, money, has not increased 
in quantity. There is therefore a change in the respective values- 
of money and of commodities in general, for coin being relatively 
scarce, prices fall. But if we could multiply 7?ioney to the same 
extent as other commodities^ the evil would be cured, for then the 
relation of values, which we call price, would not be changed and 
the crisis would not be produced. 

In fine, the theory of markets merely tends to show that there 
is nothing to fear from excess in production whenever the increase 
in production operates simultaneously and proportionately in all 
branches of production. In these terms is expressed an incon- 
testable truth ; the human race runs no risks, at any rate for a 
long time to come, of growing too rich. Unfortunately, increase 
in production is not usually exhibited under the conditions desired 
by the theory of markets. It is an extremely rare coincidence to 
see a simultaneous and equal increase in all branches of produc- 
tion ; the previous chapter has shown us that in this respect 
agriculture and the manufacturing industry are strikingly at vari- 
ance. Increase in production usually takes the form of sudden 
strokes, of intermittent and local movements ; hence it causes those 
ruptures of equilibrium, the crises already analyzed, and therefore 
men of business have always something to fear in this regard. 



CHAPTER III. 
PROGRESS IN PRODUCTION. 

I. Current Illusions as to Economic Progress. 

Progress is a theme upon which men of our day execute the 
most brilHant variations ; its marvels in economics are ceaselessly 
extolled, and everything seems to be expected from it. The 
socialists, who are so terribly pessimistic with regard to the actual 
state of social development, cherish most chimerical hopes as to 
economic progress. Thus they picture to themselves an almost 
unUmited increase of wealth by means of machinery, whilst a day's 
labor would be reduced to four hours. But what do we see on a 
closer examination ? Truly wonderful improvement in the means 
of transport and of inter- communication, the possibility of easily 
obtaining the products of the Old World and of the New either 
for our necessities or for our luxuries, the lowering of the price 
of some articles of manufacture, a great development in what we 
may call " creature comforts." These are the sum total of the 
results of progress in matters economic. They certainly amount 
to something, but to nothing of the nature of an essential change 
in man's condition, nor even a gUmpse of such. There does 
not appear, then, to be much reason for great pride in progress 
accomplished, but rather for some surprise that such compara- 
tively trifling results are all that we have gained from the scientific, 
mechanical, and industrial development achieved in the present 
century. 

But this apparent contradiction is not hard to explain, for 
progress hitherto has worked only in the least important branches 
of production, and those that are least essential to man's existence 
and his real welfare, 

345 



346 PRINCIPLES OF POLITICAL ECONOMY. 

Let us now study the case of machinery, for in that form prog- 
ress in production is the most strongly marked. 

According to the statistics issued by the Office of PubUc Works, 
there are now in France about 5,000,000 horse-power, the force 
developed by which may be calculated to be that exerted by 
100,000,000 men. For one horse-power is regarded as doing the 
work of three average horses, and the strength of one horse is 
estimated to be seven times greater than that of a man. 

Now as there are not in France as many as 10,000,000 adults, 
we may say that the productive power of the country has been 
multiplied by machinery in the proportion of i to 10 ; or if the 
more picturesque metaphor be preferred, that every French work- 
man has henceforward ten slaves in his employ, which ought to 
give him a position equivalent to that of the Roman patricians ; 
that is to say, allow him to amass the pleasures afforded by wealth 
and those enjoyed during leisure. 

Unfortunately there is much of the imaginary in this picture, 
as is easily shown by an analysis of the above statistics. Almost 
the whole of this enormous force is applied solely to transport by ' 
land or sea, to the amount of nearly 4,000,000 horse-power, seven- 
eighths of which are absorbed by locomotives. The 4,000,000 
horse-power employed in transport have produced an important 
revolution in some respects. They have greatly increased the 
solidarity of the human race by doing away with the difficulties 
that distance presented to the free communication of individuals, 
to the exchange of products, and to spreading abroad of new 
ideas. From this point of view, the use of machinery has rendered 
a moral service of enormous importance, but it can hardly be said 
to multiply production. 

Moreover, we must concur with M. Leroy-Beaulieu's remark, 
that there are many instances of double uses. Much machinery 
is entirely devoted to the production of other machines or to the 
extraction of coal wherewith to feed them (see his Sisyphisvie et 
Pauperisme^ . 

The only products, the increase in which can powerfully improve 



PRODUCTION. 347 

the condition of the working classes, are agricultural produce, 
for the primary condition of material welfare is food, and if possi- 
ble good foo(i and plenty of it. Now what results have the use 
of machinery produced in agriculture? Great ones, no doubt, in 
new countries such as the United States, where the wide stretches 
of land do not always find enough arms to till them. But of little 
importance in countries which are already cultivated and peopled. 
In France there are not 100,000 horse-power employed in agricul- 
ture, and scarcely any of them have tended to increase produc- 
tion. Mowing-machines, threshing-machines, reaping-machines, 
do not increase the crop of corn by one grain ; they only econo- 
mize manual labor. No mechanical or chemical methods have 
yet been found for the manufacture of food, in spite of the high 
pitch of the art of adulteration. 

Still the following question is always worthy of our considera- 
tion. Since the limitation encountered by agricultural industry 
arises from the fact that its materials are living things, why should 
it not attempt to overcome this obstacle by boldly dispensing with 
the assistance it receives from the mysterious forces of life, and 
endeavor to manufacture de novo the food-supplying substances, 
just as a manufacturer fabricates chemical products? 

We know that all the tissues of living beings, whether animal or 
vegetable, are almost exclusively composed of oxygen, hydrogen, 
nitrogen, carbon, and, in a very small proportion, of a few mineral 
salts, all of which are elements which may be regarded as existing 
in excessive quantities in the earth's crust and in the atmosphere. 
Theoretically, then, our problem does not appear to be insoluble. 
If, indeed, any chemist were ever to solve it, he would have 
achieved a far greater thing than the magnum opus of the alche- 
mists ; he would have found at the bottom of his crucible far more 
than the solution of a chemical problem or even of the problem 
of life ; he would have solved the social problem, or, at any rate, 
would have changed from base to apex all the laws of political 
economy. If men are ever destined to produce their means of 
subsistence by purely industrial methods, agriculture would be- 



348 PRINCIPLES OF POLITICAL ECONOMY. 

come a thing of nought ; and as man would only claim from the 
earth space for his foot to tread and for his dwelling to occupy, 
each acre of land would be able to support as dense a population 
as is now heaped together in the most crowded quarters of our 
great cities. But will that day ever come? It is gravely to be 
doubted ; and up to the present, in spite of some briUiant at- 
tempts, chemistry has not been able to turn the flank of the law 
represented by the old adage, Oinne vivum ex vivo. 

The same may be said of an industry which is likewise of capital 
importance — house-building. Machinery is scarcely applied to 
this class of production, save for exceptional buildings. We put 
up our houses as was done in the days of Noah, by piling up on 
one another stones or bricks, and joining them with cement. The 
result is that an increase, proportionate to requirement, is not 
effected in the number of comfortable houses, which is one of the 
essential conditions for happiness, health, family hfe, and morality. 
House rent is still a heavy burden to the rich and ruin to the poor, 
and the rent of houses grows even dearer than the price of food. 
Nor are houses constructed according to mechanical principles. 
Perhaps that result might follow if a general use were to be made 
of houses composed of iron or sheet-iron, which could be taken to 
pieces, and moved from place to place according to requirements. 
These attracted attention at the last Paris Exhibition. Their 
adoption would revolutionize matters. 

II. The Disadvantages necessarily involved in All Prog- 
ress in Production. 

Besides confessing that the results of progress are far smaller 
than is generally believed, we must further admit that its results 
are always disastrous to certain classes of people. For the better 
understanding of this, we must explain and define what is meant 
by progress in production. It consists simply in di??ii7iishmg the 
amount of labor necessary to produce a given result. 

The most striking example that can be cited is the invention of 



PRODUCTION. 349 

machines which multiply man's strength tenfold and a hundred- 
fold. 

For instance, certain armored ships have machinery of 10,000 
horse-power. Each horse-power is equal to the strength of about 
ten men, and as it is able to work ceaselessly night and day, the 
figure must be doubled, making it equal to twenty men. Such 
vessels, then, are moved by a force equal to that of at least 
200,000 rowers. If we suppose that there are 100 engineers or 
stokers, the strength of each of them may be regarded as being 
multiplied by 2000. 

One number of the Paris Figaro, together with the supplement, 
makes 240 pages of print of octavo size. If we grant that 100,000 
copies are struck off, that means that in one night 26,000,000 
pages are printed, or the equivalent of 40 or 50 volumes. To copy 
them in the same space of time, i.e. in six hours, we should have 
to use an army of 500,000 copyists. If, then, we suppose that 
there are 100 men employed at the printing office, each printer 
develops a power of labor equal to that of 5000 copyists. 

Still, all improvements in the organization of labor, — e.g. division 
of labor, which facilitates a better use of each man's time and 
tastes ; wholesale production, which economizes sites and capital ; 
exchange, and particularly international exchange, which puts to a 
profitable use the natural resources of respective countries ; the 
substitution of paper money or of credit for metallic money ; 
mechanisms such as co-operative societies, which, by doing away 
with middlemen, tend to put consumers and producers into direct 
relations; railways, telegraphs, telephones, — all these things (in 
fine) have no other object than to save a certain amount of time, 
trouble, or expense, in other words, of labor ; just as we have 
shown to be the case for each one of these modes of production. 

Now it is certainly a great gain to be able to reduce the amount 
of labor necessary for a given result, to procure the same satisfac- 
tion with less effort ; for it is a diminution of pain ; it is the 
setting free of a new force, which can be utilized, if need be, for 
new production. It is certainly all this ; but, given our present 



350 PRINCIPLES OF POLITICAL ECONOMY. 

economic organization, which is based on division of labor and on 
individual property, it is found that this general good takes the 
shape of evil for many individuals. For by rendering useless a 
certain amount of labor, it at one and the same time renders use- 
less a certain niunber of laborers, and obliges them to seek pain- 
fully for some other way of gaining a liveUhood. 

The reason of this is simple enough. Each of us lives from 
the income obtained by his respective work in some particular 
occupation. Here is a workwoman of Auvergne who makes lace ; 
there is a peasant of Vaucluse who cultivates madder. Now, in 
consequence of an improvement in production, such as the inven- 
tion of a lace-making machine or the discovery in coal-refuse of 
aniline red, this particular work is made useless for our specified 
workman to do. At the same moment the source of his income 
is dried up. No doubt he will always be able to try and employ 
his labor elsewhere by seeking for some other occupation ; but 
such changes are never easy ; and for those who have nothing laid 
by, i.e. for workingmen, this want of work will necessarily cause 
suffering and misery. Similarly, the facility of transport that now 
enables us to obtain at a low rate Californian corn and Chinese 
silk ruins the French landowner who used to grow corn or rear 
silk-worms. Once again, in the same way, the development of 
co-operative societies ruins a large number of small shopkeepers. 

These are by no means contingent results which might or might 
not come to pass ; they are the necessary consequences of the 
double principle on which modern society is based, — private 
property and division of labor. 

If there was no division of labor, if each man produced only 
for his own consumption, there would be no such results as the 
above. For Robinson Crusoe on his island there was unmixed 
benefit in every machine, in every sort of invention, that enabled 
him to produce more with less labor. He had everything to gain 
and nothing to lose. 

Were there no private property, i.e. if men lived under com- 
munism once more, these results would never come to pass. For 



PRODUCTION. 351 

the Icarian or the dweller in the Phalanstery, who knows that his 
cover is always laid at the common table, it matters nothing that 
any invention should arise and render his labor useless. If the 
joint society wishes him to labor, it will find him some other work ; 
if it is unable to find any, so much the better for him ; he can 
then fold his arms in peace. 

Still we must not be led to conclude, as communists are too 
eager in doing, that since private property is the real culprit, it 
must be done away with. Why not say the same of division of 
labor and propose to stop it likewise, since it is in equal measure 
responsible for this state of things ? All that we can say is that 
progress in our world is always accompanied by evils, and that it 
makes the human race pay dearly for the benefits it gives. That 
is a most patent commonplace, but some commonplaces are also 
truths, and this is of the number. 

Further, progress is not only paid for by privations and by want 
of work ; it is often bought by the price of blood. To take only 
machinery: there is scarcely a day when several workmen have 
not their ribs broken by the blows of the engine-buffer, or are not 
killed by an explosion of fire-damp, or blown to pieces by the 
bursting of a boiler, or made mince-meat of by a toothed wheel. 
The construction of every mile of railroad costs on the average 
the life of one man, and the opening up of every 100 miles five 
or six accidents yearly. As there are now 500,000 miles of rail 
in the world, 500,000 men must have been sacrificed in their 
making, and 30 out of a 1000 every year for working them. The 
most sanguinary of wars must yield the palm to this. 

III. The Question of Machinery. 

The opposition just pointed out between the interests of society 
and the interests of individuals is highly displeasing to economists, 
especially to those of the optimistic school, who regard harmony 
in things economic as an article of faith. It has therefore been 
their endeavor to show that economic progress and particularly 



352 PRINCIPLES OF POLITICAL ECONOMY. 

machinery (for there the shoe is said to pinch, though all im- 
provements in production fall under the same censure) do no 
harm at all to the working classes.^ 

The following are the three arguments they adduce : — 

Firstly, lowering of pidces. Every mechanical invention, say 
they, has as its result a lowering of the cost of production of the 
article, and consequently of its value. The workman then profits 
qua consumer from the fall in prices just as much as he loses qua 
producer. 

It is indisputable that every improvement in production, espe- 
cially in the sphere of mechanical invention, brings about a fall 
in prices ; but does this really give any compensation to the 
workman, the value of whose work is thereby depreciated ? 

There will certainly be no compensation if, as is highly probable, 
the product in question is not one that he is in the habit of 
consuming. Lace-making by machinery has certainly lowered the 
price of lace ; but as the poor woman who used to make them is 
not in the habit of decking herself with lace, she assuredly gains 
nothing by the invention. 

Even admitting that the product is consumed by the laborer, 
it may be only occasionally or slightly used by him, and then the 
compensation is purely derisory. The stocking-knitter, who loses 
her wages after the invention of a knitting-machine, will not 
readily find much consolation in the prospect of being able here- 
after to buy her stockings cheap at the hosier's. 

For the compensation to be a real one, it would be necessary 
for mechanical progress to be shown at one and the same time in 
all branches of production, so that the resulting fall in prices 
might be both general and simultaneous. Then, indeed, it might 
be said that the workman would not suffer from receiving only 
half his former wages, if concurrently all his expenses were reduced 
by half. The nominal wages would have altered, the actual wages 
would have remained the same. 

1 With some reservations Mr. Edward Atkinson may be taken as represent- 
ing the optimists in America, and Mr. Giffen in England. — J. B. 



PRODUCTION. 353 

But the very enunciation of this hypothesis is enough to show- 
its chimerical nature. We have already seen that mechanical 
discoveries are not made in all branches of production, but arise 
only in a few of them, and that virtually they do not affect in the 
least the expenses which occupy the foremost place in the work- 
man's life and weekly budget ; viz. food and housing. We have 
previously said that, according to his position, these expenses 
absorb from 60 to 75 per cent of the workman's income. Thus, 
as regards four-fifths of his consumption he receives no compen- 
sation at all. 

Secondly, increase of production. The optimists further say that 
every mechanical invention, by virtue of its causing a fall in price, 
must involve a corresponding increase in sales, and that therefore, 
in the long run, it brings back the laborers it had momentarily 
deprived of their occupation. Instead of taking work from them, 
it makes work for them. There are hosts of examples of this — 
the multiplication of books since the invention of printing, of 
cotton-stuffs since the introduction of weaving- machines, etc. 

This, indeed, is a new sort of compensation, but it is no more 
satisfactory than the above, and there are many reasons for this. 

First of all, though increase in sales is the usual consequence of 
lowering of price, this is not invariably the case. 

Whenever a product answers only to a limited want, its multi- 
plication is therefore equally limited. The instance of coffins has 
become classical ; but the same holds good of many other articles 
— corn, salt, some chemical products, etc, A fall in the price of 
these would only slightly increase their consumption. 

Whenever one industry is bound up with other industries it can 
only increase its production accordingly as they increase theirs. 
This is of very frequent occurrence. The production of bottles 
and wine-casks is limited by that of wine, and, however much the 
price of these bottles and casks may fall, not an inch more of 
them will be sold if there is no more wine to put in them. Simi- 
latly, the production of watch-springs is Hmited by that of watches ; 
the production of bolts by that of rails and of boilers ; and again, 



354 PRINCIPLES OF POLITICAL ECONOMY. 

the production of the last named is in its turn restricted by other 
causes independent of their prices, e.g. the improvement of trans- 
port, the number of mines, etc. 

Further, sometimes mechanical invention has not caused an 
increase in production, but has merely led to a diminution of 
manual labor. Most agricultural machines — mowing, threshing, 
and reaping-machines — do not add one grain to the crop. Steam- 
cranes on quays, used for the unloading of goods, evidently do 
not increase the quantity of such goods. 

Even admitting an increase in consumption, proportionate or 
more than proportionate to the fall in prices, it will require a long 
time, perhaps some generations, before the completion of this 
evolution. Time is needed for the former prices to fall, more 
time, indeed, seeing that the biassed opposition of manufacturers 
and the existence of acquired habits will tend to retard the fall. 
Competition will finally get the upper hand, but rival industries 
are not built up in a day. Further time will be needed for the 
fall of prices to enable the products to penetrate those new strata 
of society which do not change in a brief day their tastes or their 
wants. Now during all this time what will be done by the work- 
man who lives from hand to mouth ? There will perhaps be some 
compensation for his grandchildren, but there will be none for him. 

Thirdly, increase in the wages-fmid. Every employment of 
machinery that economizes manual labor necessarily involves, so 
the optimists think, a gain for some one, which is realized either 
by the producer, in the shape of extraordinary profits, if he con- 
tinues to sell his goods at the old price, or by the consumer, in 
the form of smaller expenses, if, as is most probable, the price of 
the article falls to the level of the new cost of production. 

The money which is so much the less in the pockets of the 
men who are turned away is not lost, then ; it reappears in the 
manufacturer's bank book as an increase in income, or in the con- 
sumers' purses as a saving that has been effected. But what will 
the manufacturer do with his increased income, or the consumer 
with his savings ? They will either invest them or spend them ; 



PRODUCTION. 355 

there is no other alternative. Now in either case this money must go 
to encourage some industry and develop production, either by buy-^ 
ing new products or by contributing to the production of new capital. 
(See below, "What is Investment?" page 390.) Labor, therefore, 
will recoup itself by this increase in production for its former losses. 

The argument goes on to say that, when once this evolution has 
been perfected, the sum which was taken from the wages-fund by 
the mechanical inventions will end by returning to labor. The 
result of every mechanical invention is to render available, to set 
free, as a chemist would say, not only a certain quantity of labor, 
but also a certain amount of capital ; and, as these two elements 
have a great affinity for one another, and even cannot subsist 
apart, they always end by meeting again, and once more combin- 
ing together. 

The above reasoning is perfect from a theoretical point of view, 
but we must ask, " How and when will this combination be 
effected?" Perhaps in ten years and at the other end of the 
world. Possibly the consumers' savings will be employed in the 
cutting of a canal at Panama or in the making of a railway in 
China. Capital, when once set free, can easily find investment ; 
it has wings, can take flight, and settle where it wills. Unfortu- 
nately the workman is not equally mobile or movable. He is not 
fit for every kind of work, and cannot so easily go to the ends of 
the earth to seek it. In the long run that will be done, if not by 
him, at least by his successors, for it must be so. Yet the evolution 
will be a long and painful one. That is all that we assert. 

The following can be. our only answer to this sombre question 
of machinery : probably the great mechanical and economic trans- 
formation which has been witnessed by our century is now ap- 
proaching its termination. 

History shows us that in the economic evolution of our race 
periods of rapid change have been followed by long periods of a 
stationary nature. It is therefore probable that the huge economic 
revolution of our days will be followed by a long period of rest, or 
at any rate of very leisurely progress, resembling the thousand 



3S6 PRINCIPLES OF POLITICAL ECONOMY. 

years and more that preceded it. The invention of the steam- 
engine has already, or at least will soon have, produced most of 
the consequences that can be expected from it. Is it rephed, 
"Another will be invented"? What do we know as to that? 
And, even were such a prediction to be realized, it is certain that 
the substitution of this unnamed machine for the steam-engine 
would not produce a revolution comparable to that effected by 
the substitution of steam for manual labor. Within the next half- 
century the whole world will have been girded and interlaced by 
the network of electric telegraphs and of railways. Here there is 
a definitive transformation, which will not need to be done over 
again. Let us grant that balloons will prove capable of guidance. 
Can we imagine that conveyance of travellers and of merchandise 
by balloon will have the same economic consequences as the 
replacing of the high-road by the railroad? Finally, in a few 
generations hence, the human species will be settled on all the 
available space that still remains upon the surface of our planet. 
There will be no more vacant land, and there will be an end to 
the competition of new countries on our old markets. Every- 
thing, then, leads us to believe that our grandchildren will not be 
hurried along by the same whirlwind as we have been, and that 
they, like our fathers, will be able to live a calmer life. 

IV. The Future of Production. 

If we endeavor to forecast what kind of future is in store f 
modern society from an industrial point of view, we are confron'c 
by two antagonistic opinions. 

The public as a whole (and most of the socialists share the same 
views) is full of a boundless confidence in the progress of the 
mechanical sciences and arts and in the omnipotence of the human 
genius. Hence arises the pleasant belief that the multiplication 
of wealth will become so easy that the human race will be enabled 
to live in plenty, if only each man has to work merely three or foi^'- 
hours a day with an absence of actual fatigue. 



PRODUCTION. 357 

Others think that the present production of wealth would even 
now be enough to satisfy the legitimate wants of all men, if it were 
better distributed, and that our aim should be to moderate wants 
rather than to multiply wealth. John Stuart Mill, the eloquent 
apostle of this doctrine, beheved that we are approaching a sta- 
tionary period in which the stream of human industry will finally 
spread out into a stagnant sea, and when we shall cease to see one 
sex occupied in money-hunting, and the other sex occupied in 
rearing money-hunters. He held "that it is only in backward 
countries of the world that increased production is still an im- 
portant object ; in those that are advanced, what is economically 
needed is a better distribution of wealth." {^Political Economy, 
IV, vi, sect. 2.) That, in our opinion, is a cardinal error, 
which also forms the basis of all systems of sociahsm. 

Though these two theories lead us by apparently divergent 
paths, yet they both show us the same view of the future. They 
picture to us a social state in which, either from the abundance of 
wealth or from the moderation of their desires, men will work less. 
Then, as the Greeks did in the Market Place or under the P orch, 
the hours taken away from material labor will be devoted to polit- 
ical life, to relaxation in the way of art, to gymnastics, and to the 
noble speculations of high thinking. The only difference will be 
that what was formerly the privilege of the few will become the 
portion of all. 

Unless we are altogether to despair of the future of mankind, 
we must hope that that will be the case some day ; but it may be 
long before that day shall dawn. We cannot reckon upon the 
limitation of wants, for we have already seen that man's wants are 
from their very nature capable of indefinite extension, and that 
they increase in direct ratio to individual development. Still less 
can we make sure of an unbounded multiplication of wealth, for 
we are cognizant of the current illusions with regard to progress, 
and are too well aware that in spite of all this progress the quan- 
tity of wealth that exists is ridiculously insufficient, and that even 
in those societies which are the most proud of their knowledge 



358 PRINCIPLES OF POLITICAL ECONOMY. 

and the most vain of their luxury. The human race is still like 
Robinson Crusoe in the first years of his solitude on his island. 
The day has not come for them to rest. When a sufficient amount 
of articles of subsistence has been acquired to maintain those who 
still lack them, then indeed mankind may have the right to prefer 
repose to labor. It should not be forgotten that in the world at 
this present moment there are something like a thousand millions 
of men who are more or less unsupplied with the necessaries of 
existence. Would that we had but to provide for the wants of the 
present generation ; but alas ! our numbers are ceaselessly increas- 
ing, and the end that we seek shrinks from our grasp into the 
future.-^ 

1 We might quote in this connection the concluding lines of Antipater's 
epigram (Anthology, ix, 418) : 

^' yev6ix€6' apxaiov ^l6tov tt6.\iv, el Slxa /nSxOov 
Saluvadai Atjovs epya f5i5acr.'cf^/xe0a." 



BOOK III. 

CONSUMPTION. 

I. How Wealth can be employed. 

The theory of consumption has to deal with the various uses 
that can be made of wealth, and has to show us in particular what 
are the economic as well as the moral reasons which should lead 
us to choose the respective modes of employment. 

Such a question may appear to be somewhat difficult to answer, 
for at first sight the uses that we can make of wealth seem to be 
infinitely varied. However, a nearer glance easily convinces us 
that all these diverse modes of employment can be readily classed 
under a very small number of heads. 

Let us study the probable action of Robinson Crusoe, say with 
regard to a few grains of corn picked up by him in the neighbor- 
hood of his cave. He clearly had to choose between the three 
following courses : — 

He might eat the grains of corn, i.e. employ them immediately 
towards the satisfying of his wants. 

He might sow them, i.e. employ them for the production of 
further wealth. 

Thirdly, he might do nothing at all with them, i.e. keep them 
and put them aside as a reserve for the future. 

Similarly, each man living in society can employ wealth in one 
or other of these three ways. There is no other possible mode. 
We say this in spite of the following suggestions : — 

It might be said that a man might destroy his wealth, e.g. by 
throwing it into the sea. But generally speaking the personal 
interests of the owner are a sufficient guarantee that he will not 

359 



360 PRINCIPLES OF POLITICAL ECONOMY. 

resort to this possible mode of action. However, the pubUc wel- 
fare demands that the legislator should be armed with powers to 
prevent such destruction. These powers are exerted in certain 
instances : if a man sets fire to his house or his crops, he is amen- 
able to law, and, in France, the spendthrift who wastes his capital 
may be restrained from so doing, on his relations appealing to the 
tribunals. It is possible to think that too much leniency is shown 
in these matters owing to the superstitious respect which lawyers 
have for the sacred rights of property. Still, our subject in this 
place is the employment and not the destruction of wealth. 

It might be argued that the man could give his wealth to 
another. Certainly he might ; but then the recipient will be put 
in the giver's place, and will, in his turn, be restricted to a choice 
between the three ways of employing wealth that we have set 
forth above. The transfer of wealth by donation or otherwise has 
nothing to do with consumption. We shall treat of it when we 
come to speak of distribution. 

However, in consequence of the inevitable intervention of 
money in social relations, each of our methods takes on a special 
aspect and receives a particular name. 

The act of employing wealth for the satisfaction of our wants is 
called expenditure, and every act of consumption is practically 
effected by expenditure. 

There are some exceptions to this ; e.g. the case of the peasant 
who himself consumes the produce of his own plot of ground. 
Still, if he keeps his accounts in the ordinary manner, he will not 
fail to place under the head of his expenses (at any rate by a 
convenient fiction) the products which he consumes as they are 
yielded him by the earth. 

The act of employing wealth for the production of further 
wealth is called investing ; to invest money is to employ it in pro- 
ductive undertakings. 

Thirdly, the negative act of abstaining from making an imme- 
diate employment of wealth, i.e. by laying it by, is called savings 
or rather hoarding, for, as we shall see, the term " saving " is also 
used to signify investing, and therefore leads to ambiguity. 



CHAPTER I. 
EXPENDITURE. 

I. What should be our Conception of Expenditure? 

In popular speech " to spend " means to take money out of 
one's pocket and pay it away. Still, we should not call spending 
the purchase of stocks and shares, of estates, and of houses ; such 
would rather be termed investments. Nor should we put under 
the heading of expenditure the purchases of raw material made by 
a manufacturer, the seed and the manure bought by the agricultu- 
rist, the stock of goods laid in by the tradesman or warehouseman, 
or even the wages that such employers pay out to their workmen. 
We should say that they were advances. 

The term "spending," then, is applied only to a certain class of 
purchases, to the purchase of objects or of services which are 
exclusively intended for our own personal cofisumption. Food, 
clothing, house-rent, furniture, servants, travel, all that is devoted 
to the immediate satisfaction of our wants, — that is the meaning 
of the word " spending " or " expenditure." 

Of all the modes of employing wealth, this is undoubtedly the 
most popular and the most favored by pubHc opinion. 

We can easily observe the severity with which popular sentiment 
has always judged those who save, and the bountiful indulgence it 
has ever kept in stock for those who spend. The Roman Church 
put avarice in the list of the Seven Deadly Sins, but it did not 
reserve a place for extravagance. There is not a novelist, there is 
not a playwright, who has not mercilessly ridiculed the miser, and 
many of them have expressed their sympathy for the prodigal. 

In country places, in every village the man who saves is disliked 
by his neighbors, and on the slightest pretext would be treated as 

361 



362 PRINCIPLES OF POLITICAL ECONOMY. 

a public enemy. The man who spends enjoys all the pleasures of 
popularity. But why is this ? The first man you meet will enlighten 
you ; he will say that no doubt the man who saves looks after his 
own affairs well enough, but that he does not benefit the business 
of his neighbors. By laying by his income, by keeping his fortune 
for himself, either in the shape of money, as was practised by the 
miser of the Good Old Times, or as sound, profitable stocks and 
shares, as is the custom of the thrifty man of to-day, the man who 
saves acts as an egotist ; others do not share his fortune ; no one 
makes a farthing by him. 

On the other hand, the man who spends makes trade b?'isk. 
The money that he spends or even wastes is a shower of manna to 
tradesmen, workmen, and producers of every kind. " If the rich 
do not spend much, the poor die of hunger." That was said by 
no less a person than Montesquieu. Even if the spendthrift comes 
to ruin, though every one thinks that it is sad for him, there is the 
consoling reflection that there is nothing lost, and that others will 
necessarily gain by his downfall. 

Nevertheless, since we have stated that in the long run all ex- 
penditure takes the shape of consumption, we must therefore con- 
clude that all spending implies the destruction of a certain quantity 
of wealth. The reason why this feature of expenditure is not suf- 
ficiently regarded, lies in the fact that here, as in other matters, 
people think only of money. Now it is obvious that money that 
is spent is not destroyed ; it is merely transferred from one person 
to another ; that is what we can see, to speak a la Bastiat. How- 
ever, some wealth has been actually destroyed, i.e. that which the 
spender procured by means of his money : this is the fact that we 
do not see. 

Take the case of a great ball which has cost a thousand pounds. 
No doubt these thousand pounds will reappear again. They are 
not lost. They have certainly passed out of the hands of the giver 
of the ball, and have gone to his ball contractor and tradesmen. 
But what will never be found again and is really destroyed is the 
wealth suppHed to him by his tradespeople, These have alto- 



CONSUMPTION. 363 

gether ceased to exist, whether at his house or in their stores. 
The cakes and sweets are eaten, the candles are burnt out, the 
flowers are faded, the dresses have lost their freshness, and so 
forth j in a word, there are a thousand pounds' worth of wealth to 
strike off from the sum total of wealth possessed by society. 

Still, we must make allowance for certain extenuating circum- 
stances with regard to expenditure. 

The articles that we buy are not always annihilated by the 
circumstance that we use them. Clothes last several months, 
furniture some years, houses some generations ; and it is the priv- 
ilege of works of art, such as statues, and other works in bronze 
and in marble, and pictures, to afford us the same enjoyment 
during the course of centuries, and indeed almost for an indefi- 
nite period. In such cases expenditure evidently loses its de- 
structive character, for not only does the money spent remain 
unconsumed, but the same is the lot of the commodity acquired 
in exchange for it. In accordance with this, when any one buys 
a valuable piece of furniture, or fine plate, or good pictures, 
people are wont to say that he has made a good investment. 
Still, in any case such an expression is inaccurate, for, though 
this expenditure is not destructive, yet it cannot be called pro- 
ductive, and in that respect it must always differ from an invest- 
ment in the correct acceptation of that term. Nevertheless, 
when a collector buys some old chipped pottery at the auction 
rooms, and pays ;!^ioo for it, such expenditure, though perhaps 
a foolish act on the part of the spender, does not constitute any 
real destruction of wealth. 

Again, in many cases, a certain quantity of wealth is consumed, 
but, nevertheless, the value of the wealth destroyed is far from 
being equal to the sum total of the expenditure. This occurs 
whenever, for any reason, an article is bought at a price which is 
much above its real value, value in this instance standing for the 
object's cost of production. For example, when a lady pays 
;£"5o for an ordinary dress, merely because it is made in the 
workroom of a fashionable dressmaker, the amount of wealth 



364 PRINCIPLES OF POLITICAL ECONOMY. 

actually consumed is obviously worth much less than the ;z^50 
paid. We must measure it by the value of the material used 
and by the amount of work done by the seamstresses and makers- 
up ; in other words, it is probably less than a quarter of the price 
paid. No doubt the ;£^o are altogether lost by the lady who has 
spent them, but they are not lost as regards society taken as a 
whole. They are only transferred to the account of the dressmaker. 
It therefore follows (as John Stuart Mill remarks with much 
subtlety) that the spendthrift does not really squander so much 
wealth as we might be disposed to believe, and, even if he has not 
a farthing left, we are not to think that he has swallowed up all his 
fortune. A goodly proportion of it still subsists in the hands of 
all those who have profited by his folly; e.g. his tradesmen, his 
stewards and baihffs, his servants, perhaps even his friends, who 
have won money from him at the card-table. All this is so much 
saved from the shipwreck. 

II. How it happens that Expenditure regulates but does 
not feed Production. 

A glance at the economic organism is enough to show the inti- 
mate relations between production and consumption, and to indi- 
cate how far the former regulates its pace according to the speed 
of the latter. Whenever consumption increases, production dis- 
plays a redoubled activity ; a stoppage or slackening of consump- 
tion causes dulness of business. It is only a step further to 
conclude that consumption is the real cause of production, and 
that the more there is consumed, the more there is produced. 
The unthinking public readily takes this step forward, and asserts 
that in order to produce we must consume much ; in other words, 
spend much. 

Yet a deep abyss separates the two ideas. The enunciation of 
the fact is correct enough ; the inference drawn is absurd. 

It is obvious that the production of commodities is determined 
by the desire we have for them, though this is not identical with 



CONSUMPTION. 365 

consumption, which is only the satisfaction of that desire. If we 
have a keen desire for anything, we shall endeavor to produce it 
in as large quantities as possible ; if we no longer care about it, we 
shall turn our efforts elsewhere. 

But it is also obvious that to desire a thing does not create it. 
We must also have the means of producing it. Matters would be 
otherwise did our will possess creative power. Unfortunately it 
does not. As we are aware, the creation of wealth requires a 
certain amount of labor, of raw material, of land, and of capital. 
Now all these requirements cannot possibly be increased either by 
our expenditure or by our consumption; on the contrary, they 
can only be diminished by them. 

Were any one to say that the more fruit we plucked the more 
our orchard would yield, the more fish were netted the more the 
sea would supply, the more wood we burnt the higher and thicker 
would be the forest trees, we should instantly perceive the ab- 
surdity of such a train of argument. Why should we laugh ? Be- 
cause we clearly see that the productive power of these natural 
agents does not depend on our consumption. Still, we do not 
consider it ridiculous to say that the more ribands we consume, 
the more ribands will be produced. But why not? Because 
if we desire this product more than another, manufacture will 
speedily find the means of satisfying us, by diverting to this branch 
of industry the labor and capital previously employed on other 
productive undertakings ; and thus the production of ribands will 
grow pari passu with the consumption of them. Yet, however 
keenly we might have desired them, however large a quantity we 
might have been disposed to consume, these ribands would never 
have been produced save for the prior existence of the necessary 
factors in all production ; namely, a certain number of workers, a 
certain amount of capital. The number of those who labor, it 
does not lie with us to increase ; the amount of capital we cer- 
tainly can increase, but in what way ? By spending ? Surely not. 
On the contrary, by saving. Production, then, is fed not by 
spending, but by saving. 



366 PRINCIPLES OF POLITICAL ECONOMY. 

The following figure will make the matter clearer : The amount 
of wealth existing in a country at any particular moment should 
be represented, not as a mass of water enclosed in a cistern, but 
as a running stream which is ever renewed, being fed by the two 
springs, land and labor. Now many people think that the more 
water is drawn from the brook, the more water there will be. That 
is impossible, for each of these springs has only a limited supply, 
and if many persons draw water therefrom as often and as freely as 
they like, the rest of the community will be obliged to go on short 
commons. 

III. The Real Aims of Expenditure. 

It would be ridiculous, from the fact that all spending generally 
leads to a destruction of wealth, for us to infer that each one of us 
ought to try to consume as little as possible. 

For all wealth is destined to be consumed ; in fact, is made only 
for that purpose. As the French word implies, co?tso?nmation 
means the accomplishment or consummation of the whole eco- 
nomic process ; it is the final end aimed at by production, circula- 
tion, and distribution. The only raiso7i d'etre of saving is to insure 
fuller satisfaction for future consumption. When, in our recent 
example, Robinson Crusoe sowed in the ground the handful of 
grains saved from the wreck, instead of eating them outright, he 
did this so that he might be able to eat ten times as many the 
next year. Always to save, in order never to consume, would be 
the most futile occupation that mankind could possibly turn to. 

On the other hand, we must not lose sight of a point we have 
had frequently to dwell on. The quantity of wealth that exists in 
the world is still extremely insufficient, and the human race is 
scarcely any richer than Robinson Crusoe was on his island. 
Under these circumstances it may be to the interests of society, 
as well as part of the duty of every individual, to husband these 
precious resources, by reducing as far as possible the portion ex- 
pended in unproductive consumption, and by devoting the greatest 
possible part to the production of new wealth. 



CONSUMPTION. 367 

We should therefore divide into two portions each man's private 
income, and ^Iso the collective income of an entire country. One 
part should be for spending, the other for saving. In all civilized 
societies this division is spontaneously effected, though the pro- 
portions are very unequal ; for it is rare, even in the most advanced 
countries, for the amount devoted to saving to reach a tenth of 
the whole revenue. The annual savings of France and of England 
approximately attain this proportion, for they may be reckoned as 
between ^80,000,000 and ^120,000,000 sterling, out of a total 
of ;^i, 000,000,000 to ^1,200,000,000. The reason is that there 
is a great inequality in potency of the respective motives that 
incite to spending and stimulate to saving. 

It would be no less important for us to be able to determine 
scientifically the legitimate aims of spending. Although the prob- 
lem is not susceptible either of a rigorous or even of an uni- 
versal solution, still it may be wise for us to state certain leading 
principles upon which economists have come to agree. 

Firstly. Every act of spending that has as its result some 
physical or intellectual development of mankind, should be re- 
garded not only as being good in itself, but also as being prefera- 
ble to saving. For how could man better use wealth than by 
employing it to fortify his health and develop his mental powers ? 
From this point of view wholesome food, good clothing, a healthy 
house, comfortable furniture, and instructive books, are expenses 
which should not only extort our permission, but should also re- 
ceive our recommendation. Indeed, such may be said to be the 
best of all investments, although, no doubt, when men seek to 
obtain as good food and housing as possible, their general aim is 
merely to procure some personal gratification ; nevertheless, this 
consumption tends indirectly to increase their capacity for work 
and their productive power, and thus produces in the long run the 
same result as saving. 

Above all, such should be the direction taken by pubHc ex- 
penses ; for we must never lose sight of the fact that they, in the 
same way as private expenses, constitute a destruction of wealth. 



368 PRINCIPLES OF POLITICAL ECONOMY. 

But if this wealth has been consumed with the view of developing 
the education of our citizens, as by schools or libraries, of strength- 
ening their bodily health, as by public gardens, hospitals, pubHc 
baths, or gymnasia, or of forming their taste, as by museums, 
concerts, or even theatres, such expenditure seems fit to be be- 
yond criticism. But even then we must be careful to provide no 
more luxury than is absolutely necessary for the attainment of the 
end in view. 

Secondly. Conversely, all expenditure that tends to the opposite 
result, i.e. that is of a character to injuriously affect the physical, 
intellectual, or moral development of man, deserves the condem- 
nation of the economist as well as of the moralist, for sooner or 
later it weakens productive power. The most striking example 
of expenditure of this nature is the consumption of alcohol in our 
own European lands or of opium in the East. The French, who 
drink, on the whole, less alcoholic liquors than most other nations, 
consume yearly about 33,000,000 gallons of brandy. These are 
sold retail in about 10,000,000,000 '' nips," at a penny each, and 
amount to an annual expenditure of about ^40,000,000 sterling. 
Even this enormous expenditure is relatively a trifle when com- 
pared with the incalculable losses that it brings in its train, in the 
shape of incapacity for work, disease, madness, crime, and suicide. 
Far more alcohol is consumed in Russia, in Germany, in Belgium, 
in Holland, and in Switzerland. Still, it is consoling to find that 
this consumption has been perceptibly reduced in Norway, Eng- 
land, and the United States, by means of the action of temperance 
societies. In fact, the " drink " question is one of the questions 
of the day. 

We must also characterize as harmful every act of spending 
which does not answer to any want of man, and which, therefore, 
is a purely foohsh destruction of wealth. In this category must 
be placed such acts as that related by J. B. Say ; viz. the case of 
the man breaking wineglasses at dessert, " in order that every one 
may be able to live." The livelihood of society was not one jot 
directly impaired or improved by such an action. The only con- 



CONSUMPTION. 369 

sequence was that an hour had to be wasted in making another 
wineglass, to compensate for the wanton folly of this crack-brain. 
Cleopatra's wine did not gain a richer " bouquet " from the pearl 
she dissolved in her glass ; ^sop's dish of the tongues of birds, 
which had all been previously taught to speak or to sing, certainly 
tasted no better than a dish of the tongues of birds which had not 
acquired such pleasure-giving accomplishments. The cardinal 
idea at the bottom of such acts is spending for spending's sake — 
spending which is treated as an end instead of as a means, com- 
bined, perhaps, with that inane satisfaction which some people 
obtain from the pleasure of mere destruction. But there is no 
need of recondite examples of this. Every man who drinks a 
glass of beer when he is not thirsty, or smokes a cigar with no 
pleasure to himself, and only with the idea of " doing as others 
do," destroys wealth on a small scale, in exactly the same manner 
as was done by the Queen of Egypt, or by ^sop the actor. Nay, 
my phrase " on a small scale " is inaccurate ; for if we could 
reckon up all the wasteful acts of consumption in one single coun- 
try, acts which have not even the excuse of affording the slightest 
enjoyment, we should find that they amount to a far higher sum 
than the value of Cleopatra's pearl. 

IV. Luxury. 

Even supposing the observance of the principles that we have 
enunciated, our problem would still be far from being solved ; for 
what are we to say of those multifarious expenditures which, with- 
out directly contributing to our physical or intellectual develop- 
ment, tend, nevertheless, to make life more agreeable, by instilling 
into it greater comfort and more refined enjoyments ? 

This will be seen to propound the celebrated problem of luxury ^ 
which has been an eternal subject of controversy among econo- 
mists as well as among moralists. 

Perhaps it may be thought that a necessary prelude to this 
subject should be a definition of luxury. Such an opinion is 



370 PRINCIPLES OF POLITICAL ECONOMY. 

well-grounded, but unfortunately the idea of luxury is not sus- 
ceptible of any precise definition. The word " luxury " expresses 
the idea of a double disproportion — a disproportion on the one 
hand between the private fortune of a person and the expense he 
incurs, and on the other hand between the expenditure made and 
the satisfaction obtained. Luxury, in fact, is to devote a sum of 
money, or, more scientifically speaking, a relatively large amount 
of labor, to the satisfaction of a relatively supej'fluous want. 

On this, as on almost every other great question in political 
economy, we find the field disputed by two opposing schools. 

According to one school, all expenses in the way of luxury fall 
under the head of such expenditure as should be condemned in 
the name of economic science, even if not prohibited by positive 
laws. It is well known that, both in ancient times, as well as in 
the Middle Ages, expenses of luxury have frequently been pro- 
hibited by su7nptuary laws (an account of which may be found 
in the second volume of Roscher's Political Economy). The 
school under review lays down that, as the quantity of existing 
wealth is insufficient even to satisfy the primal wants of the large 
majority of our fellow-creatures, we should endeavor to increase 
this available store as much as ever we can, and should refrain 
from drawing on it in a reckless manner in order to satisfy super- 
fluous wants. Further, the productive powers that we can use 
are, as a matter of fact, limited ; and therefore, if the wealthy 
classes divert a portion of these forces towards the production of 
articles of luxury, there will be so much the less available for the 
production of those staple articles that the masses require for 
their consumption. 

To this the opposing school replies that luxury is an indispensa- 
ble stimulus to progress ; that, really, all economic progress is first 
manifested in the shape of a need of luxury, and that luxury, 
therefore, is a necessary phase of its development. Every want 
or need is, on its first appearance in the world, necessarily re- 
garded as superfluous ; firstly, because no one has hitherto felt it, 
and secondly, because its satisfaction probably requires a consid- 



CONSUMPTION. 371 

arable amount of labor, on account of man's lack of experience of 
the corresponding industry, and the inevitable gropings in the 
dark that attend all beginnings. Among the articles that nowa- 
days are regarded as indispensable we must certainly place body 
linen. " To be reduced to one's last shirt " is a proverbial phrase, 
expressive of the last degree of destitution. Yet history teaches 
what, indeed, we might have easily guessed, — that at certain 
epochs a shirt was considered as an object of great luxury, and 
sometimes served even as a royal present. It is the same with 
every other article that we might choose to notice. If, then, the 
principles of the first school had been applied with sufficient vigor 
to repress every desire for luxury, all the needs that constitute the 
civilized man would have been nipped in the bud, and we should 
still be in the condition of our ancestors of the Stone Age. 

The tenets of the first school are set forth by M. de Laveleye, 
in his work on Le Luxe, and those of the second school are con- 
tained in M. Leroy-Beaulieu's Precis d' Economie politique. The 
opinions of those who hold an intermediate position may be found 
in M. Baudrillart's four volumes on the Histoire du Luxe. 

Still, in our opinion there is no necessary contradiction between 
these two theses. It is possible, at one and the same time, to 
condemn all expenses in the way of luxury which entail an exces- 
sive squandering of productive power, and also to accept, or even 
favor, every new want which answers to a new invention, or tends 
to enlarge the range of the human senses. To fit up a telephone 
in one's house is certainly an act of luxury ; nevertheless, the use 
of this invention is especially capable of making life easier, through 
economizing time, and diminishing the difficulties and the griefs 
occasioned by separations of relatives and friends. Further, the 
only means of putting this instrument within the reach of all is to 
first extend its use among the wealthy classes. The conclusion 
is that those who can afford to incur this expense act wisely in so 
doing. But, on the other hand, when a lady of fashion wears on 
her ball-dress some yards of lace, which must have cost the lace- 
maker several years of labor, or when an EngUshman of title, in 



372 PRINCIPLES OF POLITICAL ECONOMY. 

order to give himself the proud pleasure of affording grouse-shoot- 
ing to his sportsman guests, turns into game preserves acres and 
acres which might have supphed several hundred human beings 
with food, — in such cases we have the right to declare that wealth 
has been culpably misused. The interests of progress have noth- 
ing to do with it. 

But an objector may ask, " Do you think that if English aristo- 
crats were to dismiss their armies of servants, abandon their vast 
pleasure-parks and shooting-grounds, close their stables, give up 
their packs, and drink less claret and port, the condition of the 
English working poor would be improved in any form or shape? " 
Certainly we do. The army of workmen would be reinforced by 
those dismissed from a service of idleness ; cultivable land would 
be increased in extent by the tracts that would thus be restored 
to it ; kine or swine would be fattened with the food hitherto given 
to horses or dogs ; and, above all, the capital of the country would 
be augmented by all that the " upper ten " would henceforth cease 
to consume. Now if all the elements of production were increased 
in this wise, the quantity of wealth, too, would necessarily be 
augmented ; were wealth more abundant, it would be more easily 
obtained, and the condition of the lower classes would be improved 
in like proportion. 

A word or two may be necessary as to art. Should art be held 
to be a luxury? Undoubtedly it should, from the economist's 
point of view ; but of all luxuries it is the one that he can regard 
the most favorably, even according to a strictly economic cri- 
terion. The point to consider is not whether ;^24,ooo has been 
paid for a picture such as Millet's " L'Angelus," but whether this 
picture has required an amount of labor or of capital which is 
disproportionate to the pleasure it can give to the purchaser and 
others. Now it is evident that the picture has absorbed a rela- 
tively minute amount of wealth and of labor. For what has been 
consumed in its painting? A yard of canvas, a few tubes of colors, 
and a few weeks or months of one man's labors (the labor of two 
or three, perhaps, if we include the models). The result is a work 



CONSUMPTION. 373 

which, on account of its unhraited powers of durabiHty, will be able 
to give the most exquisite delight to all succeeding generations for 
a thousand years hence, or even longer. Here surely the effort 
made is not disproportionate to the result achieved. 

However, there are certain forms of art which require a great 
consumption of wealth; for example, the architecture of the 
Pyramids of Egypt, a Gothic cathedral, or such a theatre as the 
Paris Opera House. These are more justifiable forms of expendi- 
ture, for they are instances of public luxury. 

It is also true that every high art always involves a greater waste 
of productive power than any other form of production, since for 
every artist of genius we must always reckon, say, a hundred others, 
who have missed their mark and are " failures." Their labor, 
therefore, is wasted to no purpose. 

V. The Expenditure of Foreigners. 

Although what a Frenchman spends in France constitutes a 
destruction of wealth for his country, the expenses incurred by 
foreigners are not to be looked at in the same light. No doubt a 
foreigner, also, destroys by consumption a certain quantity of 
material wealth, but he brings in exchange an equivalent amount 
of money, and the country he visits loses nothing thereby. This, 
of course, proceeds on the supposition that he draws these funds 
from his own country ; for, if he spends this money out of the 
interest on capital he has invested in France, or out of rent from 
land which he holds in • France, his expenditure, as far as its 
effects are concerned, will clearly be indistinguishable from the 
expenditure of a native Frenchman. 

Is it enough to say that the country loses nothing? Ought we 
not rather to affirm that it gains? Such, in truth, is the popular 
opinion. The expenditure made in a country by foreign residents 
or tourists is usually regarded as a source of wealth for the country. 
In Switzerland, Italy, Nice, and Paris the foreigner is the pro- 
verbial goose that lays the golden eggs. Economists, for theiif 



374 PRINCIPLES OF POLITICAL ECONOMY. 

part, have no scruples in treating such opinions as mere prejudices, 
and in declaring that this expenditure is sterile and cannot in the 
least increase the wealth of the country. Which are we to believe ? 

The economists urge that foreigners, in exchange for the money 
which they bring into a country, consume an exactly equal amount 
of wealth, and that therefore the country considered as a whole 
neither loses nor gains, though particular districts or industries 
may incontestably obtain some benefit. It is admitted as a matter 
of course that the presence of foreigners in any locality will at- 
tract thither not only people, but also capital, and that excellent 
business will be done by hotel-proprietors, keepers of livery 
stables, photographers, and so forth ; but the economists proceed 
to say that as these workers and this capital are diverted from 
other parts of the country, other industries must surely lose just 
as much as these will gain. 

But is it quite correct to say that foreigners in exchange for 
their money always consume an equivalent amount of wealth? It 
is not true in all cases. 

In the first place, it is not true whenever a foreigner is cheated ; 
i.e. whenever he is obliged to pay far more money than they are 
worth for the articles that he consumes ; in such cases he clearly 
pays a kind of tribute to the country that he is visiting ; in other 
words, a poll-tax is levied on him. Making all due reserves as to 
the morality of such proceedings, still we must observe that such 
exactions have become hallowed by usage, and there are few 
towns frequented by foreigners in which there are not two sets of 
prices, one for foreigners, the other for the natives. 

Again, the dictum of the economists is not true whenever the 
wealth in question is from its nature neither consumable nor 
destructible. When a foreigner purchases the right of enjoying 
clear skies, of breathing pure air, of gazing upon picturesque 
scenes (and this he does whenever he rents a villa or hires a 
carriage or engages a guide), he does not diminish the wealth 
of the country by the slightest fraction. On the contrary, he 
literally pays rent to the country, precisely the same rent as accrues 



CONSUMPTION. 375 

to any landowner who holds the monopoly of some natural advan- 
tage. Why, indeed, should not glaciers like those of Switzerland, 
coasts like the Riviera, waterfalls like the Norwegian, museums 
and old ruins like those in Italy, — why should not all these be 
sources of wealth for the respective countries just in the same 
manner as coal mines or forests are ? 

It may be rejoined that these are unproductive goods. With- 
out doubt they produce nothing for mankind in general, save a 
particular form of enjoyment, but they clearly return an income 
to the country that has discovered a means of profiting by them 
by allowing foreigners to use or merely view them on payment of 
a certain sum. If there is any curious object on my estate and 
I put barriers round it and impose the payment of a shilling upon 
any passer-by who is inquisitive or interested enough to wish to 
view it, no doubt the revenue of the country will not be increased 
thereby, but my own income will be powerfully increased at the 
expense of the pockets of the tourists. But, if I am obliged to 
make an enclosure of the spot or have to pay a person to look 
after it, then there will obviously be expenses to deduct from 
my returns. Similarly, the expenses incurred in building villas, 
and the services rendered by guides, coachmen, and ciceroni in 
charge of tourists, evidently represent an amount of capital and 
of labor which have to be deducted, but in the end a net profit 
may remain over. 

Further, we hear the following argument urged : the only effect 
of this supposed gain is to augment the quantity of money in 
circulation in the country, and this increase of money confers 
no real advantage. As the coins become more abundant, they will 
lose some of their purchasing power and prices will rise. That 
is all the gain ! 

More than once already we have had occasion to explain our 
position with reference to this theory that it does not matter to a 
country whether it has much or little money. In the present 
instance it is enough to observe, that, if Englishmen have been 
willing to give France some thousands of pounds, merely for the 



37^ PRINCIPLES OF POLITICAL ECONOMY. 

pleasure of residing at Paris or at Nice, France is perfectly free to 
exchange this money for an equal value of English goods ; and 
such goods will be an increase of wealth for which France has 
paid nothing. 

This afflux of money must be regarded as particularly advan- 
tageous when a country has experienced a scarcity of coin, either 
through an excessive circulation of paper money, or when the 
balance of trade has been unfavorable. The continued flocking 
of foreign tourists into Italy is certainly one of the circumstances 
that have aided that country in getting rid of her paper money, 
and of returning to payment in specie. 

However, it is further to be observed that, as we cannot set up 
a continuous current of coin from one country to another, and as 
the equilibrium between exports and imports always tends to re- 
establish itself, the expenditure of foreigners will, if the situation 
be much prolonged, be paid, not by remittances of specie, but by 
foreign goods imported into France. 

That is certainly accurate ; but such a position will not be 
actually effected till the country has become sufficiently provided 
with money in the shape of coin. 

VI. The Means of reducing Expenditure. 

There is only one way of reducing expenditure without reducing 
consumption (for the latter course would lead us to trench on the 
province of saving) ; this mode is association. 

If several persons join together for the purpose of having only 
one house, one hearth, or one dinner-table, in that way they will 
be able to obtain the same amount of satisfaction with far less 
expense. 

Daily instances of this are given by the maintenance of religious 
votaries at convents, of soldiers at barracks, of boys at boarding- 
schools. 

But what is the reason for this ? It springs from those very 
causes that make production on a large scale so much cheaper 



CONSUMPTION. 377 

than isolated production. We are already familiar with these 
causes, and^ by modifying them a Httle we can easily transpose 
them from the region of production into the sphere of consump- 
tion. The enormous savings that can result from consumption in 
common, especially as regards attendance, housing, cooking, have 
been vividly and picturesquely described by Fourier in his Traite 
de V Association domestique agricole, and by his follower, Consid^- 
rant, in his Destinees sociales. 

From this circumstance communists are ready to conclude that 
the kind of life heretofore led by human societies, viz. family life 
in isolated groups, involves excessive expenditure and a real waste 
of wealth. To replace this family life by life in common would, 
in their opinion, be a great step in advance, and a great benefit to 
mankind. Fourier, in his description of his phalanstery, has set 
forth this idea with more energy and vigor than have been dis- 
played by any of its other exponents. 

Unfortunately, though Hfe in common possesses the incontestable 
advantage of bringing about much saving, on the other hand it 
has the mischievous effect of doing away with family life, of de- 
stroying the domestic fireside ; in a word, of annihilating that 
" home " which constitutes one of the first needs of man, and is 
one of the principal charms of existence. Human nature has 
always revolted against life in a mess-room, or even at a table 
d^hote. Fourier, no doubt, may think otherwise ; he says in his 
Association domestique agricole, Vol. II, page 25 : ^^ K pater familias 
on reading this sketch will say, ' My pleasure is to dine with my 
wife and children ; and whatever happens, I will keep this agree- 
able custom.' He is altogether wrong in his opinion. Just at 
present, his habit pleases him, because he has no better one ; but 
when he has had two days' experience of the customs of Har- 
mony, he will send to the fold his wife and children, and they for 
their part will like nothing better than emancipation from the 
melancholy family dinner." We must not forget, when we read 
this passage, that Fourier was an old bachelor. 

We should lose sight of the very aim of wealth, the whole scope 



378 PRINCIPLES OF POLITICAL ECONOMY. 

of which is to afford us enjoyment, if we were thus to sacrifice, 
to a desire of living a Httle more economically, all the conditions 
of private happiness and one of the factors of human existence 
that most powerfully strengthens morals. Then, in fact, we should 
have to repeat the poet's saying, " Propter vitam,vivendi perdere 
causam^ 

But without binding ourselves to actual hfe in common, — i.e. 
the obligation of sleeping under the same roof and dining at the 
same table, — we can still obtain at least a portion of the advan- 
tages of consumption in common. This result has been achieved, 
both by the institution of public kitchens {fourneaux econo- 
miques), which prepare food in large quantities, but allow con- 
sumers to carry home their dishes if they prefer, and in smaller 
measure by the establishment of consumers' societies which con- 
fine themselves to buying staple articles of food wholesale for dis- 
tribution among their members. When we speak of saving, we 
shall refer again to this institution. Here we may remark that 
these public kitchens exist in a large number of towns, and are 
very beneficial to the poorer classes. The " portion " of soup, or 
vegetable, or meat, already cooked, is usually sold for id. or i^d. 
The prices in London have been further lowered by the employ- 
ment of huge ovens which cost a little over or under a thousand 
pounds apiece. 



CHAPTER II. 

SAVING. 

I. What should be our Conception of Saving? 

In popular speech the word "saving" has a perfectly definite 
sense : it simply expresses the fact of abstaining from consumption, 
of " laying by " some wealth. 

The term can scarcely be applied except to one kind of wealth ; 
viz. the precious metals, especially when in the form of hard 
money. For in order that riches may be " laid by," their nature 
must be suitable to that action ; in other words, they must be able 
to " keep." Now, only a few articles of wealth satisfy this condi- 
tion. Most wealth rapidly deteriorates, and that process is often 
more speedy when the article is not used than when it is used. 
Furniture and cloth fade ; linen becomes torn, and grows yellow 
in the press ; iron rusts ; articles of food spoil, or are eaten up by 
insects ; even wine, after first improving, is at last injuriously 
affected by being kept. 

This simple idea of saving (viz. "laying by") has been com- 
plicated by economists who have introduced the notion of in- 
vesting into that of saving, and reserve the word " hoarding " for 
a mere accumulation of wealth. Now, nothing authorizes such 
a distinction, neither facts nor logic. Facts do not, for it does 
not necessarily follow that all savings are invested ; on the con- 
trary, they often end by being used up. Logic does not, for it 
is not accurate to denote by one and the same expression two 
operations which are not only distinct, but are altogether contra- 
dictory. " To save " means not to consume wealth, whereas " to 
invest " signifies, as we shall see, our handing over wealth for 
consumption by others. The former excludes the idea of con- 

379 



380 PRINCIPLES OF POLITICAL ECONOMY. 

sumption ; the latter necessarily implies it. Hence arises the 
ambiguity of the word "saving," and this double meaning has 
contributed in no small degree to the obscurity of the matter. 

In this chapter, then, we shall use the word " saving "as a simple 
expression of the fact of not consuming wealth, and of putting it 
in reserve, as a synonym of hoarding, if that be preferred. 

We have already seen that public opinion, which is so favorable 
to spending, is exceedingly hostile to this mode of employing 
wealth. The man who pays too much attention to saving is 
regarded as a miser unless, indeed, far stronger epithets are ap- 
plied ; and it is taken for granted that the money he lays by is so 
much bread which has been stolen from the workers. 

However, even if we take saving to mean hoarding, even if we 
reduce it to the simple fact of restraining consumption and of 
conserving a certain quantity of wealth, it is hard to see how 
such acts can be considered inimical to the interests of society ; 
on the contrary, the reverse is true. Every piece of money 
should be regarded as an " order," or ticket, which gives its 
holder the right of deducting from the total quantity of existing 
wealth a certain amount which is equal to the value of the coin. 
The man who saves — that is to say, the man who locks up this 
coin in a drawer — merely declares that for the present he will 
abstain from exercising his rights and from deducting his portion. 
Surely he is free to do this ; he injures no one. The share that 
he might have consumed will be consumed by others, until he or 
his heirs, or those who have borrowed from him (if he ever decides to 
invest his money), come in their own good time to use these orders. 

Is he reproached with withdrawing from circulation a certain 
quantity of money? The statement is a true one ; but that money 
is not lost ; it is not even damaged. Sooner or later it will emerge 
from its hiding-place. Meantime, the only possible effect of this 
disappearance of a certain quantity of money, if indeed the sum 
is large enough to produce any perceptible effect, will be a pro- 
visional lowering of prices, or, as the end of all, an advantage for 
consumers and for the poor. 



CONSUMPTION. 381 

No doubt, if this putting by of wealth is without any object, or 
if its only object is the pleasure of now and again gloating over 
the treasure-casket and the gold it contains (and this is the char- 
acteristic trait of all miserly Harpagons), then, indeed, the act is 
worthy of all the sarcasms with which misers of every age have 
always been riddled. But even then, though the act is a foohsh 
one on the part of the performer, it is perfectly inoffensive from a 
social point of view, far more inoffensive than the doings of the 
spendthrift. It could only be susceptible of real damage to society 
when it is practised with regard to objects which are not capable 
of being kept, and when the consequence would be an actual 
destruction of wealth. We might instance the miser in Florian's 
fable, who was in the habit of keeping apples till they were rotten, 
and 

" Lorsque quelqu'une se gdtait 
En soupirant il la mangeait." 

But when hoarding is made with regard to money, and that is 
really its only form, the above disadvantage is not to be feared. 

Still, we must acknowledge that, though the popular prejudice, 
which ranks the spendthrift far above the " miser," lacks any eco- 
nomical basis, it is not without justification from the point of view 
of morals. For avarice, or even excess in saving, denotes a strong 
love of money ; whereas prodigality betokens a certain carelessness 
with regard to, and a certain contempt of, this vile metal. To 
quote a popular saying which is equally expressive and picturesque, 
the wastrel is a "money killer." As the thirst for gold, ami sacra 
fames, is the fountain-head of innumerable evils, popular prejudice 
might obtain some justification in that quarter. 

However, there is no manner of doubt that in most cases saving 
has some actual end in view ; it is either to make an investment, 
i.e. to serve for the production of new wealth ; or, at the very 
least, to form a reserve fund wherewith to face certain necessities 
and to combat unexpected contingencies. 

In these, which are the normal conditions, saving is not only an 
act which is highly intelligent and meritorious on the part of the 



382 PRINCIPLES OF POLITICAL ECONOMY. 

agent, but further, it is extremely beneficial to society, and we 
could not dispense with it without plunging ourselves into certain 
ruin. We know, in fact, that it is impossible to create new wealth 
without the assistance of a certain amount of pre-existing wealth; 
in other words, without capital. But where is society to find this 
capital ? Precisely in that very portion of wealth which has not 
been consumed by those who might have consumed it : to those 
persons society cries, " I see you do not need this wealth ! Lend 
it to me, so that I may employ it in the production of further 
wealth ! " And saving men comply with this request. If it ever 
unfortunately happened that every member of a particular society 
had consumed all that he had the right to consume, and that 
therefore no more wealth was available for new production, in 
that case production would be compelled to stop. 

II. The Conditions Necessary for Saving. 

There are two conditions which are necessary for saving, — the 
possibility of reducing one's consumption, and the willingness to 
do so. 

Fi7'stly. To be able to save — i.e. to put in reserve a certain 
amount of wealth — it is, first of all, necessary that the quantity 
of wealth at one's disposal should be at least large enough to 
satisfy the necessities of existence. Unfortunately this primary 
condition is lacking in the case of the great majority of mankind. 
No doubt man's wants are so elastic that they may be regarded as 
indefinitely compressible ; and a person whose sole income was a 
pound of bread per day might perhaps accustom himself to eat 
only every other day, and might thus save half. But, whenever 
saving takes the form of a charge upon man's necessaries, or even 
upon his legitimate wants, it is disastrous rather than useful. Let 
us repeat here what we said a few pages back. Man can employ 
wealth in no better way than by devoting it to the development of 
his physical, intellectual, and moral faculties ; and this holds good, 
even from a purely economic point of view. 



CONSUMPTION. 383 

It therefore follows that saving is, in a way, a luxury which is 
scarcely procurable except by wealthy societies, and even in these 
it can be only obtained by those who are in easy circumstances ; 
that is to say, by the minority. In fact, saving is the special 
social function of the rich. 

The opinion is constantly repeated that nothing would be easier 
for workmen than to save, since they readily find the means of 
spending many thousands of pounds in nothing but brandy and 
tobacco. No doubt they would do much better if they took to 
the savings bank the sums that they devote to such useless or 
baneful consumption ; but they would do better still if they em- 
ployed this money in giving themselves and their families more 
healthy homes, more sanitary clothing, more wholesome food, 
more frequent medical care, more complete education, and so 
forth. This consumption of brandy and tobacco is not taken from 
workmen's spare money, as is often supposed, but is most usually 
subtracted from what should pay for their bare necessities. It 
may be said "then they are so much the more culpable." That 
is likely enough, but the sermons we may wish to preach them 
should be based less on the text " save " than on the text " dis- 
tribute your expenditure better." 

Secondly. It is not enough to be able to save. The will to save 
is also necessary, and this second condition is no less difficult to 
fulfil than the first one. All saving, inasmuch as it implies a re- 
duction in consumption, also implies some suffering, or at any rate, 
a privation or a sacrifice ; and no man is disposed to wantonly 
inflict a privation on himself. 

Now, it is clear that the sacrifice demanded by saving varies 
very greatly according to our respective share of this world's goods ; 
and that it may, in a way, pass through all the degrees between 
zero and infinity. 

For the man who possesses scarcely more than the bare neces- 
saries of fife, saving is altogether impossible, or is an exceedingly 
painful operation; for, so to speak, it presupposes the amputation 
of some essential want. 



384 PRINCIPLES OF POLITICAL ECONOMY. 

On the other hand, for the man who possesses a superabundant 
quantity of wealth, saving is no longer a sacrifice. A sacrifice ! 
nay, it may even become a necessity ; for in the long run, there 
is a limit to every man's powers of consumption, even though they 
be those of a Gargantua. A term must come both to our wants 
and to our desires, and Nature herself has fixed the line by placing 
satiety on the limiting point. 

Every man, then, who thinks of saving is held back by the con- 
sideration of the larger or smaller sacrifice that he will have to 
impose on himself; but, in an opposite direction, he is exercised 
by the thought of the larger or smaller advantage that he expects 
from saving. He has to weigh in the balance two wants, — ■- a 
present want which he ought to refuse to satisfy — say the hunger 
which is pressing him — and a future want which he would like to 
satisfy by due provision — say the desire to have bread for his old 
age. His will oscillates between these two conflicting forces ; and 
according as one or other is the more powerful, in that direction 
will he make up his mind. (We pointed out the same conflict 
between the same forces when we were discussing labor.) 

This faculty of thus striking a balance between a present want 
and a future want, and of looking at both of them as present in 
the view of the mind's eye, is called by its true name, " foresight." 
But we must not think that this faculty is possessed by every one. 
For, observe that the present want is a reality ; we perceive it 
physically ; the want that is yet to come is a pure abstraction ; 
we only perceive it by means of our imagination. We therefore 
require special habits of thought and will to accustom us to 
abstraction, and such can only arise in a somewhat advanced state 
of civihzation. (See Bagehot, Economic SttLdies^ " The Growth 
of Capital.") 

Our occupations, especially in these latter-day societies, and 
our training, oblige us constantly to take thought for the future. 
Men of science, seeking to penetrate the secrets of times to come, 
politicians, anxious for the morrow, financiers, who have plunged 
into speculation, ordinary business men, who are occupied with 



CONSUMPTION. 385 

the bills that fall due at the end of each month and the inventory 
of their stock that they make at the close of each year, — all of 
us unconsciously, but still in greater or less degree, have become 
familiarized with this unknown future, and have come to see that 
it is an item which we must take into account. But that requires 
an intellectual effort which is beyond the reach of the savage, who 
is only conscious of each pressing need, and who, to use Montes- 
quieu's celebrated phrase, fells the tree in order to gather its fruit. 
Such an effort is even hard to those of our fellowmen whose social 
condition most closely resembles the position of primitive peoples. 
Hence it happens that the want of foresight, or improvidence, 
is the characteristic feature, both of savage races, and of the lower 
or depraved classes of our modern societies. 

It is clear that the greater and the more palpable the advan- 
tages to be obtained from saving, the more strongly will each 
man's will be bent in the direction of saving. 

Now the prospect of being able to invest our savings with com- 
plete safety, and of drawing from them a greater or less amount 
of interest — and such a prospect is easily realized, thanks to the 
laws and institutions of the present day — should obviously act as 
a powerful stimulus to saving. As we shall see, one of the strongest 
arguments that can be adduced in favor of interest is to represent 
it as a premium or bounty on. saving. But to regard it as a sine 
qua non of saving, as is done by most economists, is to err on the 
side of excess. If some decree based on collectivist principles 
were to abolish interest to-morrow, no doubt there would no 
longer be any person who would be disposed to lend his money, 
but there would still be people who would save ; for, as we cannot 
repeat too often, investment is not the sole end of saving. Per- 
haps, indeed, owing to the very fact that saving could no longer 
be renewed and increased by interest, men might be led to make 
even greater accumulations of money than they do now. That 
might be harmful rather than beneficial. The foregoing supposi- 
tion is not hard to prove. Let us suppose that a man wishes to 
insure for himself from the age of fifty, and for his children after 



386 PRINCIPLES OF POLITICAL ECONOMY. 

him, a sum of ^200 a year. Thanks to interest, he need only 
save a capital of ^^4000. Were there no such thing as interest, 
if we reckon twenty years for himself and only thirty years for his 
son after him, he would have to save a sum of 50 times ;£20o, 
or ;^io,ooo. 

III. Institutions for the Facilitation of Saving, 

In all civilized countries there are varied and ingenious institu- 
tions for the purpose of facilitating saving, which are due some- 
times to the initiative of legislators, sometimes to the independent 
action of private persons. The two most characteristic forms are 
savings banks and consumers^ societies. 

Section i. Savings Banks. 

Savings banks are institutions which are intended to facilitate 
thrift, by taking charge of sums that have been saved. The ser- 
vice they render the depositor is to place his savings in safety as 
regards robbers, and perhaps even more so as against himself. 

For the best way to preserve growing savings is to take them 
out of the keeping of their owner, in order to prevent him from 
yielding too easily to the temptation of spending them. An in- 
genious application of this idea is the " money-box," which is so 
well known to French children as the tire-lire, an earthenware jar, 
into which coins are dropped through a tiny slit. To regain 
possession of the coin the jar must be broken ; and though that 
is not hard to do, this slight obstacle is thought to be sufficient 
to give time for reflection, and to enable the child to strengthen 
himself against temptation. 

The savings bank is only an improved " money-box." No doubt 
the small sums deposited therein can be used by the depositor at 
his own discretion ; still, they are neither in his hand nor in his 
pocket. In order to recover them, certain formalities must always 
be gone through, and, in any case, more time is required than is 
occupied by the breaking of a " money-box." 



CONSUMPTION. 387 

In order to encourage saving, depositors are also guaranteed a 
small interest by these banks ; but this interest should only be 
regarded as a sort of premium on, or stimulus to, saving, and 
should never be too high. The business of a savings bank is not 
to serve as an investment institution. (Thus in France the maxi- 
mum sum that can be deposited has been fixed at ^So ; in our 
opinion this limit is too high, and it would be better to return to 
the former maximum of ^40.) Its object is to enable people 
to lay by a little money for emergencies, or even to form a small 
capital. But, when once this capital has been got together, and 
the depositors wish to invest it, i.e. to make it yield returns, in 
that case the money ought to be returned by the savings bank, 
which has played its part. Other institutions will now take charge 
of such capital ; viz. those which we have examined under the 
head of credit societies, banks, Credit-Fonder, and so forth. 

We may note that in France savings banks are instituted either 
by private persons, or by municipalities, or by the State, in which 
latter case they are held only at post-offices. But all alike are 
compelled to pay the funds that they receive into the office of 
deposits and lodgements (" Caisse des depots et consignations ") ; 
in other words, into the State coffers. Although this requirement 
of the law is intended to afford perfect security to depositors, it 
has been sharply criticised, and not without reason. In the first 
place, by placing in the hands of the government a sum that is 
now not far from ^120,000,000, and that is yearly increased by an 
amount ranging between ;^8,ooo,ooo to ;^i 2,000,000, it swells 
beyond due measure a debt which is all the more dangerous, 
inasmuch as it is always payable on the earliest demand, and 
besides laying heavy responsibilities upon the government also 
exposes it to dangerous temptations. Again, when once these 
moneys have been swallowed up by the maw of the Treasury, they 
absolutely cease to be of any further use, though they might be 
easily employed to more advantage. Thus, in Italy, where these 
savings banks are remarkably well organized, the greater part of 
the receipts are devoted to loans to landowners or to agricul- 



388 PRINCIPLES OF POLITICAL ECONOMY, 

turists. As the interest paid to depositors is very low, only a 
small interest need be asked from agriculturists; and this is a 
priceless boon to agriculture. Meantime, the depositors enjoy 
approximately the same security. 

Section 2. Consumers' Co-operative Societies. 

The object of the institutions which are called consumers' 
co-operative societies {societes co-operatives de consommatio7i) is 
to facihtate thrift by doing away with that element of privation 
which we have already pointed to as a condition inherent to all 
saving. They succeed in solving that apparently insoluble prob- 
lem, and in creating " automatic saving " by means of a mechan- 
ism which is as simple as it is ingenious. 

A larger or smaller number of persons join together to buy in 
common, and therefore wholesale, all or part of the articles that 
are necessary for their consumption. These goods, which have 
been bought at wholesale prices, are then re-sold to its members 
by the society, at retail prices, and the gain which is realized on 
the difference is at the end of the year distributed among all the 
members according to the amount of their purchases. For exam- 
ple, if a member has bought ^^20 worth of groceries during the 
year, and the society has made a profit of 10 per cent, at the end 
of the year he will find that he has effected a saving of £^2 which 
will have cost him nothing ; I mean that he has not been obliged 
to reduce his consumption in anything. He has consumed as much 
as before ; he has had goods of better quahty ; their price has not 
been dearer, or it has been even cheaper, than what he would have 
had to pay the shopkeeper at the corner of the street. In spite 
of all this, he has saved ; and the more he has bought, the more 
he has saved. Thus people have been able to say, in a kind of 
witty paradox, that a way has been found of effecting a saving by 
means of spending ! 

The origin of these institutions begins with the ever-famous 
history of the Rochdale Pioneers, in 1844. Since then they have 
undergone a remarkable development in all countries, but espe- 



CONSUMPTION. 389 

cially in England. In that country these societies reckon no less 
than a milKon members (that is to say, a million families, or a 
seventh of the population) . They do business to the amount of 
^36,000,000 ; and the savings which the working classes have 
thus been able to make yearly exceed ;2£4,ooo,ooo. In France, 
too, especially during the last few years, a number of these societies 
have formed a federation after the English fashion. They hold 
yearly congresses, and have founded a wholesale store to supply 
provisions on a large scale to syndicated consumers' societies. 

The object assigned by some of these institutions is merely to 
reduce expetises, and not to effect a saving. In these cases they 
sell goods to their members at the cheapest rate possible ; i.e. at 
the cost price. This is a very inferior form of association, and is 
open to criticism in several respects. It usually prevents the 
society from expanding its business, and always exasperates the 
retail trade. 

On the contrary, other of these institutions have a loftier end 
in view. One object is to gradually do away with the jniddlemen 
between the producer and the consumer, and thus free society 
from an overwhelming burden ; another is to progressively emanci- 
pate the working classes, by giving them the means of accumu- 
lating a huge capital, which will enable them to found producers' 
co-operative societies, and to carry on a victorious struggle against 
capitalist industry. The English societies now possess about 
;^5,ooo,ooo in invested funds. This accumulation of capital is an 
item in the programme of the French federation of co-operative 
societies. We shall speak of this further on, when we deal with 
co-operative societies of production. 



CHAPTER III. 
INVESTING. 

I. What should be our Conception of Investing? 

To invest wealth is to employ it productively ; to invest corn, 
we must sow it instead of eating it ; coal must be consumed in 
the furnace of an engine instead of being burnt on the grate of 
our hearth ; a horse must be yoked to the plough, not harnessed 
to a carriage ; and money must be made to yield returns, and not 
be merely spent. 

It follows from the above examples, as it would from any other 
instances that might be given, that investing, just as much as 
saving, is a mode of consuming wealth. There is only one differ- 
ence, but that is a great one : spending is a consumption which 
merely serves to afford us some enjoyment, whereas investing is a 
consumption that aids in the reproduction of new wealth. 

When money is the article in question (and our examination 
of the various modes of employing wealth is almost entirely 
confined to this form), investing may take two different shapes. 
The man who wishes to give productive employment to his money 
can choose between the two following courses : — 

Fi7'stly. He can lend this money to some one who will make 
use of it. He can do this either by lending it directly by means 
of a mortgage or other ordinary business loan, or by buying 
credit papers in the shape of government stock, railway shares or 
debentures, etc. It is this mode of employment which is usually 
referred to wherever "investment" is spoken of. 

Secondly. His other course is to devote this money to the 
direct estabHshment, on his own account, of some commercial, 
industrial, or agricultural business; or he can build a house in 
390 



CONSUMPTION. 391 

order to let it. This, too, is a mode of investing his money or, 
at any rate, of making it yield returns. 

In either case the money which is thus invested receives the 
name of capital, and it deserves that name ; for (except for acci- 
dents or miscalculations) it produces or ought to produce an 
income for its owner under the form of interest, dividend, arrears, 
profits, or gains. 

It is true that investments are not always productive for those 
who have made them, and even less so for society at large. For 
instance, at least three-fourths of the 30 milliards of francs (or 
^1,200,000,000 sterling) which have been lent to the French 
government since the beginning of this century, have only been 
used to fire cannon and kill many men, an occupation which can 
scarcely be called intrinsically productive. Inasmuch as these 
30 milliards of francs are totally unproductive as regards the 
country, how is it that each year they return about ^^40,000,000 
to their owners, i.e. to holders of government stock? The expla- 
nation is exceedingly simple. The State yearly levies on the 
incomes of the tax-payers, that is to say, on the product of the 
labor of all Frenchmen, the ^40,000,000 which are necessary for 
the payment of the interest on these ruinous transactions. To 
act honestly it could scarcely do otherwise, for, qua borrower, it 
is. bound by a contract. 

On the other hand, the ;^4oo,ooo,ooo which have been put into 
railways, the ;^40,ooo,ooo devoted to the piercing of the Suez 
Canal, and other even more fortunate investments, have been em- 
ployments of wealth which have been highly productive, not only 
for their investors, but for the country too, and even for mankind. 
Surely, then, the most useful employment of wealth from a social 
point of view is to invest. 

This, however, is not the popular opinion ; it is usually thought 
that the man who spends his money makes trade brisker, and gives 
workmen more work to do, than the man who is content to invest 
it ; and at any rate, when the investment consists in buying securi- 
ties, which are to be locked up in his safe or docketed. This 



392 PRINCIPLES OF POLITICAL ECONOMY. 

is imagined to be only a form of hoarding. Those who reason 
after such a fashion have really no idea of the real meaning of 
investment. 

Let us suppose that a man devotes his money to buying railway 
debentures — say in the Paris-Lyon-Mediierranee — and purchases 
these from the company direct over the counter at their offices, 
(I say "direct" ; for if the security is l^ought on the Bourse, there 
is only a simple transfer.) Our capitalist is merely substituted for 
the former holder of the stock, and in that there is no productive 
employment from a social point of view. Still, we must observe 
that the capitalist who has sold his security will also be obliged to 
find some productive employment for the money he has received 
in exchange ; and probably he has effected this sale precisely 
because he had some other employment in view. To return to 
our buyer from the company direct. He hands over to the com- 
pany the value of this stock in money. Now what will they do 
with his money ? Will they lock it up in their strong-box ? Surely 
not, for then they might have abstained from borrowing it. They 
will use it for the purchase of coals, of rails, of sleepers, for the 
payment of their employees, of the workmen who make their 
engines, of the navvies who construct, and the plate-layers who 
repair, their lines. It would be the same with every other imagin- 
able form of investment. The money is spent even when it is 
lent to the State, though then not usually in a productive manner. 
But certainly the government borrows it, because it requires money 
for the payment of its contractors, for the manufacture of muskets, 
and so forth. In any case, then, the invested money will be spent 
by those to whom it has been lent, if not by the owner himself. 
It will, therefore, do good to trade, and will be used for the pur- 
chase of goods or the payment of workmen. But, instead of being 
spent unproductively, it will be expended in a productive manner. 

Before proceeding further we must answer a possible objection. 
It might be said, were each man to make it a rule to invest all his 
money, then no one would consume any more, or, at any rate, 
consumption would be restricted to the bare necessaries of life. 



CONSUMPTION. 393 

In that case, are we not obliged to conclude that production must 
stop, and that henceforth there would be no more industrial under- 
takings, and no more work for any one ? 

In the first place, this objection is a contradiction in terms, for 
every investment necessarily supposes production. If, then, pro- 
duction had to cease, all investing would become impossible ; and 
capitalists would be obliged, willy nilly, to revert again to con- 
sumption. Moreover, those who argue in this fashion forget that 
investing can only be the act of a minority, the act of those only 
who have more than they require. Thus no great harm would 
be done, if on an otherwise wild hypothesis, all rich people were 
to take to living on dry bread and cold water. No doubt, in 
consequence of a lack of demand, there would be a cessation of 
the production of articles destined for consumption by the wealthy 
classes ; but commodities necessary for the consumption of the 
masses would still continue to be produced. Again, as the pro- 
duction of such articles would henceforward be the only outlet for 
the investments of the rich, it would thereby be powerfully stim- 
ulated. These articles would become far more plentiful in the 
market. They would consequently be far less dear, and all 
people would be benefited. 

Still, there is one thing that may differentiate invested money 
from money that is only spent. Perhaps the former may be ex- 
pended further off, outside the owner's country. This circumstance 
has prevented people from clearly perceiving that the invested 
money is spent. Say that with his savings the capitalist buys 
Panama debentures, then the money he has saved may perhaps 
go to pay negroes or Chinese coolies ; whereas, if he had spent 
this sum, it might have directly benefited the workmen of his own 
country. In this regard, the latter have some grounds for com- 
plaining. Still, it is enough to remark that, if the savings of the 
French do aid in providing work for foreign laborers, in a recip- 
rocal manner the savings of foreigners may come to be invested 
in France, and give employment to P'rench workmen. Thus a 
compensation may be effected up to a certain point. 



394 PRINCIPLES OF POLITICAL ECONOMY. 

In order that no obscurity whatever should rest on this impor- 
tant subject, we must now ehminate money; for it is clear that in 
these operations money is only a symbol, and that of itself it can 
produce nothing. 

A subscriber for a railway debenture of ;^5o, which is to yield 
him ^3 in interest, might use the following language if he knew 
any poKtical economy : " Here are £c^o worth of tickets which 
give me the right of deducting an equal value from the whole 
sum of existing wealth to supply my own consumption. Now, 
for my part, I prefer not to exercise this right. I therefore 
hand these ' tickets ' over to you ; and by means of them you can 
exercise the right I have refused, and levy that amount of wealth 
in coal or iron, or whatever you may require for your production. 
Or if you pass on these ' tickets ' to your workmen in the form of 
wages, they may be able by means of them to obtain the com- 
modities which are necessary for their existence. However, as I 
do not intend to make a present, either to you or your workmen, 
. of that portion of wealth which was mine by right, I stipulate that 
you shall give me ^t^ as interest on the new wealth you may pro- 
duce by your own work or by the labor of the men in your employ." 

To sum up : to spend your money is to consume a certain quan- 
tity of wealth on your own account ; to invest your money is to 
transfer to others your rights and your power of consumption. 
No doubt this transfer is not gratuitous ; but still we can see the 
absurdity of the prejudice which beUeves that to invest is to keep 
for yourself, and that to spend is to distribute among others. We 
can also observe the profound truth of John Stuart Mill's sentence 
{Political Econo?fiy, Book IV, sect. 9), "A person who buys com- 
modities and consumes them himself does no good to the laboring 
classes, and it is only by what he abstains from consumittg that he 
benefits them." 

Socialists declare that this transfer is like the distribution of 
shares made by the Hon in the fable, and that it really means the 
robbery of the workers. When we discuss the subject of profits, 
we shall be able to e^^amine this statement. But, even admitting 



CONSUMPTION. 395 

that the levy made by the capitalist is exorbitant and unjustifiable, 
in any case it will always leave some scraps over for the workman ; 
whereas, if the capitahst consumed all his capital himself, there 
would not be a crumb remaining. 

II. The Conditions Necessary for Investing^. 

These conditions are two in number, — the confidence that we 
shall get our money back again, that is to say, some security ^ and 
the prospect of some gain to be made. 

I. Let us consider the security first of all. In order to invest 
his savings, i.e. to give them productive employment, a man must 
give them up ; he must hand them over for reproductive con- 
sumption ; he must agree to their destruction. Now no one will 
consent to this unless he firmly beHeves that this wealth, of which 
he provisionally deprives himself, will not be lost, but will return 
to him augmented. Security, alone, can give us such an assur- 
ance : first, political security^ which guarantees us against the con- 
fiscations of an oppressive government, against revolutions from 
within and invasions from without ; next, legal security, which 
guarantees our rights over the capital we have invested, by the aid 
of all those juridical institutions whose aim is to assure the carry- 
ing out of contracts, securities, mortgages, concessions, and legal 
powers ; finally, moral security, which consists in the progress of 
pubhc morality and the fidelity of all of us in keeping our engage- 
ments ; without this, indeed, all the other guarantees would be 
certainly insufficient. 

In an absence of this security, those who have saved will not 
consent to let their capital pass out of their hands, and will pre- 
fer to keep it by means of a hoarding, which is sterile but free 
from danger. Hence it happens that we see so many cases of 
hoarding and so few instances of investing in troubled times like 
the Middle Ages, or in countries without regular government, like 
those in the East. Under such circumstances the only employ- 
ment that is available for capital is trade in articles of luxury, for 



396 PRINCIPLES OF POLITICAL ECONOMY. 

as these possess great value in small bulk, they can be transported 
and concealed with ease. Even land, then, fails to present the 
conditions necessary for this desired security ; for, though it can- 
not be destroyed, it can be confiscated, pillaged, and ground 
down with taxes. On the other hand, the present day offers to 
would-be investors a thousand resources which were unknown to 
our fathers ; for investments are innumerable, and very many of 
them are perfectly safe. In 1815 oiAy four securities were quoted 
on the Paris Bourse; in 1888 there were 767, without reckoning 
hundreds more which were quoted either in the departments of 
France or on foreign Bourses. 

2. Some gain must be made, either in the shape of the profits, 
properly so-called, that are realized when a man turns his money 
to account himself, or as interest when he lends it to others. For 
if invested capital were to return to its owner just as it had left 
him, it would not be worth while to part with it, and it would 
have been simpler to keep it. As we have shown above, the 
extinction of all interest would not necessarily do away with all 
saving, but it would certainly put a stop to all investing. 

However, it would not be right to infer from this, that the 
necessary result of a fall in interest must be a restriction of invest- 
ing ; on the contrary, it should stimulate investment. People 
usually save in order to make sure of a certain income that shall 
be enough for them to live on, let us say ;!^400 a year. If the 
rate of interest is 5 per cent, the attainment of this end will 
require the investment of a capital of ^8000 ; but, if the rate of 
interest falls to 2 per cent, the capital necessary for the same 
result will be ^20,000. Under such circumstances it is almost 
certain that the fall in the rate of interest will act as a spur which 
will incite men to work longer and save more. Still there is a 
limit, though it is difficult to fix ; if the rate of interest were to 
fall to one-tenth per cent, and, therefore, it were necessary to save 
a capital of ;^4oo,ooo in order to assure an income of ;;^400, 
it is probable that no one would invest henceforward ; for the 
immense majority of people would think that so poor a result did 



CONSUMPTION. 397 

not deserve the trouble of temporarily dispossessing themselves 
of their money. They would continue to save all the same for 
the purpose of satisfying future wants, but instead of employing 
their savings productively, they would be content with putting 
them away in a safe place and with consuming them day by day 
according to circumstances. 

We need not now devote a separate chapter to the study of the 
institutions for the facilitation of investing, as we did when treat- 
ing of saving. In our days numberless facilities are afforded to 
people who wish to invest their money : there are industrial or 
financial enterprises, especially in the form of joint- stock com- 
panies ; there are undertakings dealing with agriculture or landed 
property, notably those carried on by means of the credit fonder ; 
and there are the constant borrowings of the State, particularly the 
issuing of public loans. 



BOOK IV. 

DISTRIBUTION. 



Part I. — The Various Principles of Distribution. 

CHAPTER I. 

THE SOCIAL PROBLEM. 

I. Is there a Social Question? 

The distribution of wealth comprises all those topics that are 
now, by common agreement, called social questions, or, in brief, 
the social question. This is none other than the ever-present sub- 
ject of the rich and the poor. 

But is there a social problem ? The Hberal school formally de- 
nies it, and refuses to hold that the question is a reasonable one 
merely because it has been debated for a thousand years or so. The 
question of perpetual motion has also been discussed for centuries. 
This school says that there is no social question, if we mean by 
that the problem of determining how wealth should be distributed 
among men ; and it is a singular fact that the great classical econ- 
omists, Turgot, Adam Smith, J. B. Say, and Ricardo, neither dis- 
cussed nor even enunciated the problem of a better distribution 
of wealth. It is altogether irrational to attempt to make men 
happy by any a priori formula, even were that formula the expres- 
sion of ideal justice. We cannot distribute wealth, for it distrib- 
utes itself in virtue of natural laws which men have not invented, 
cannot change, and have no motive to alter ; for, taking all in all, 
398 



DISTRIBUTION. 399 

they approach the largest measure of justice that we can hope to 
expect from any social system. In fact, the automatic working of 
these laws enables each member of modern society to be remuner- 
ated in proportion to the services rendered by him. 

The method is as follows : Every man offers to the public what 
he possesses ; the landowner his crops, the manufacturer the pro- 
duct of his labor, and he who possesses nothing offers his bodily 
strength or his intelligence. The value of this commodity or of 
this labor power is determined in the market by the ordinary laws 
of value which amount to this well-known principle : things have 
more or less value, according as they answer to a more or less 
intense desire felt by men, according as they are able to satisfy 
more or less imperious wants, according as they are 7no7'e or less 
useful, to employ that term in a wide sense. Thus, when we say 
that each man's remuneration is determined by the value of the 
articles he can supply or of the kind of labor he can offer, we 
mean that his share in the distribution of wealth is proportional 
to the amount of social utility he has supplied ; i.e. to the services 
he has rendered. That is the formula which the school" of Bastiat 
loves. 

Withal it is ingenious, and is quite convincing to those who 
only desire to be shown that the existing order of things is excel- 
lent ; but its insufficiency is palpable if we merely recapitulate our 
theory of value. The reasoning would be correct were the value 
of things determined by labor, or even by social utility, under- 
standing by that the actual aid given to the labors of society as 
a whole. But that is not the case. The value of things is deter- 
mined by a body of complex causes, which are usually summed 
up in the law of supply and demand, — a natural law, no doubt, 
but, by that very circumstance, as foreign to any idea of justice or 
morality as, say, the law of gravity. 

Take an example. Compare a miner, who is paid three shillings 
a day for extracting coal, with a diva who receives ^160 a night 
for singing at a theatre. If we ask why the former, who produces 
the bread of manufacture, is paid a thousand times less than the 



400 PRINCIPLES OF POLITICAL ECONOMY. 

singer who only affords a passing pleasure to a few dilettanti, the 
school of Bastiat will reply boldly, " Because she has rendered to 
society a thousand times greater service than the miner has, and 
the proof is that society consents to pay her a thousand times 
more. Society may be wrong, but the price it pays is our only 
mode of estimating the value of services rendered to it." We 
might also be reminded of the repartee made by a great singer to 
the P^mpress Catherine, for complaining that she dared to ask for 
a higher salary than her marshals received : " Very well, then, get 
your marshals to sing ! " 

In all this there is clearly a play upon the word "service." The 
fact that the singer is paid far more highly than the miner does 
not show that she has aided society in a more useful fashion, or 
even that the kind of satisfaction she can give answers to the more 
intense wants of men in general ; it only shows that it satisfies the 
desires of a small number of men. It further proves that it is 
easier to find men to act as miners than it is to discover opera 
singers with their throats constructed in a certain manner. Simi- 
larly, a picture signed by a celebrated name may, as was recently 
the case, fetch the price of ^30,000, if it excites the desire of any 
one wealthy man. 

Our example was a fancy one, but many others may be lighted 
on everywhere. Two farmers take exactly the same amount of 
effort to bring to market sacks of corn of identical quality, and 
therefore of equal value as regards social utiHty. If one of the 
farmers has the good luck to see his neighbors' crops damaged 
by hail or frost, the remuneration he receives will be ever so much 
higher. An English nobleman, who owns much property in Lon- 
don, allows contractors to build houses on his land, at a rent which 
he increases at each renewal of the lease, in proportion to the 
rise of the value of land and of house rents. It is clear that his 
remuneration, which amounts, perhaps, to a miUion pounds, is de- 
termined quite naturally by the law of supply and demand, but 
it is not so easy to see how this remuneration is proportional 
to the service rendered. Even if we call it his "service " allowing 



DISTRIBUTION. 4OI 

people to live on his land, it is not easy to perceive the reasons 
of justice or of social utility which have granted the noble lord the 
pleasant privilege of rendering his fellow- men services which are 
so dearly paid for. 

We may be told that this mode of distribution is natural, though 
we can trace in most countries historical, and, in a way, artificial 
causes, such as conquest or oppressive laws, which have greatly 
modified distribution. If we are told that this mode of distribu- 
tion is necessary, we shall accept the dictum in a certain measure, 
for we shall find that the system is not easy to replace. But let 
us not be told that it is founded on a principle of justice. We 
must repeat that present distribution is based on the law of supply 
and demand, which of itself is neither moral nor immoral, and 
which is as perfectly indifferent to all our thoughts of justice as 
the sun which shineth on the just as on the unjust. That is why 
there is a social question. Men refuse to accept a social order 
which is independent of all ideas of justice, and their efforts will 
ever be directed to putting things as they are in conformity with 
things as they ought to be. 

II. The Inequality of Wealth. 

To the general pubUc the clearest and most appalhng fact in 
the distribution of wealth is its inequality. 

We may even say that men daily find this inequality the more 
unbearable, in proportion to the successive breaking down of all 
the other inequalities which used to separate them one from 
the other. Modern laws have realized civil equality; universal 
suffrage has given political equality; the growing diffusion of 
education is tending to introduce the reign of a virtual intellectual 
equality. But the inequality of wealth still remains : formerly it 
was hidden, as it were, behind even deeper inequalities; now, 
however, it is seen in the foreground of our democratic societies, 
and against it dash the waves of pubhc wrath. 

However, if inequality were the only vice to be found in the 



402 PRINCIPLES OF POLITICAL ECONOMY. 

present distribution of wealth, tlie evil would not be so very great ; 
in reality, it would not be an evil at all. 

If there be any fact which possesses in a high degree the char- 
acteristics of a natural fact, it surely is inequality. Science does 
not authorize us to believe that we shall ever succeed in effecting 
its disappearance, and certainly does not advise us to make the 
attempt. On the contrary, it assures us by the mouth of its most 
competent, or at any rate its best accredited, representatives that 
inequality is as indispensable for the development of the human 
species as it is for that of all other species, and that it is the sine 
qua non of progress. Thus Professor Schmidt declares that '^Dar- 
winism is the scientific basis of inequality " ; Haeckel says that 
" in the life of humanity, as in that of plants and of animals, only 
a small minority ever succeeds in living and in developing" ; and 
Herbert Spencer asserts that " all arrangements which tend to do 
away with any difference between the higher and the lower are 
diametrically opposed to the stages of organization and to the 
coming of a higher life." ^ 

Even if we confine ourselves to purely economic ground, we are 
told that the inequality of wealth is an excellent, perhaps the only, 
stimulus to production ; for from the foot to the top of the social 
scale it keeps all classes moving with the prospect of some kind 
of advancement ; it alone can develop individual initiative to its 
full extent by concentrating powerful amounts of capital in the 
hands of a few able persons ; finally, it alone can give fruitful 
variety to men's labors by means of the unbounded gamut of 
wants and desires that it establishes between them. It is only in 
the wealthy classes that a new want can be stirred to take its rise, 
and thence by the force of imitation it is gradually spread right 
down to the lowest strata of society. 

All this is true enough, but the question remains unsolved, for 
there is inequality and inequality. There is a beneficent inequality 

1 The German Socialists have clearly recognized the need of coming to terms 
with Darwinism. See, for example, a series of papers on the subject in tie 
Neue Zeit for 1890. — J. B. 



DISTRIBUTION. 4O3 

which stimulates the progress of human society and prepares the 
way for a higher hfe for all ; there is also a baneful inequality 
which paralyzes the development of the social organism by allow- 
ing a class of parasites to live at its expense. The inequalities 
which characterize modern society must now be assigned to one 
or other of the above classes. 

Three characteristics are necessary for inequalities to produce 
the salutary effects which are expected from them : they ought 
to be in a certain relation to the services rendered ; they ought 
not to be excessive ; they ought not to be permanent. 

For when the inequality of fortune bears no ratio to the 
inequality of services rendered, when, instead of springing from 
natural causes, it arises from artificial causes such as past con- 
quests or laws which have long been oppressive, it keeps up in 
the social organism an irritation and a state of discomfort which 
the flight of time does not cure, but renders more acute. 

When the inequality becomes permanent and, as it were, pre- 
ordained, when it creates classes, when the children of the rich 
are destined to be always rich and the offspring of the poor always 
poor, then its results are injurious even as regards productive 
activity. It discourages those who are at the bottom of the 
ladder, for they are deprived of all chance of ever climbing it ; 
those who are at the top it lulls to sleep in the security of an 
acquired position. Those who are too poor are prevented from 
laboring, because they are no longer able to produce ; those who 
are too rich do not work, because they have no longer any desire 
to do so. Thus are engendered those two evils which have for 
years afflicted society ; their names are idleness and pauperism, 
and both alike end in unproductive consumption. In thus per- 
petuating these two classes of parasites, the one at the top, the 
other at the bottom, of the social scale, extreme inequahty goes 
diametrically against the natural selection which is so much 
extolled to us. 

When the inequality of fortunes becomes excessive, in its train 
follow a whole series of inequalities which revolt the public mind 



404 PRINCIPLES OF POLITICAL ECONOMY. 

and disturb the public well-being ; when the poor man is very 
poor he is necessarily a prey to ignorance, vice, crime, disease, 
and premature death. Be it remarked, moreover, that it is the 
smallest inequalities which stir men's minds the most keenly ; great 
inequaUties may excite envy, but the hopelessness of overcoming 
them negatives all emulation. The small peasant proprietor will 
work hard to make his plot as large and as compact as his neigh- 
bor's ; but he will not labor a moment the more from seeing the 
squire's seat, for he knows that he will never own it. 

Almost all the above grievous features still exist in modern 
society, though they are less marked than they were in ancient times. 

The inequalities which are seen in the distribution of wealth 
greatly exceed in their proportions the inequalities which result 
from nature. The differences which may exist between the 
height of a giant and of a dwarf, between the muscular power of 
the strongest and of the weakest man, probably even between the 
intellectual capacity of a man of genius and of a person of limited 
intelligence, if they could be measured by some dynamometer, — 
all these would be seen to be but trifling when compared with the 
enormous difference that may exist between the poor man and 
the rich man. Most rural families in a country like France (which 
is one of those in which easy circumstances are the most common) 
have to be content with an income less than ^£40 ; but there are 
fortunes in the world that can only be reckoned by milHons. 
William Vanderbilt, the American, left a fortune which was estimated 
to be rather more than ;£'40,ooo,ooo. Thus that single man had 
an income equal to that on which 40,000 or 50,000 families might 
live. Now no one, not even Vanderbilt himself, would have dared 
to assert that his intelligence or his capacities were 50,000 times 
greater than those of the average of his contemporaries. Still he 
was in a certain degree a self-made man ; whereas in England a 
few hundred peers held as their own, and have handed down from 
father to son for centuries, about half the land in England. 

When it has passed certain limits, this inequality of fortune 
brings with it the other inequalities of which we have spoken. 



DISTRIBUTION. 4O5 

Let us not talk of vice or ignorance, though they may, in large meas- 
ure, be regarded as the fatal consequences of misery ; let us only 
look at that possession par excellence to which it seems that all 
men should have equal rights. I mean "life." Alas ! That, too, 
is most unequally meted out to the rich and to the poor ; and 
statistics show that the average duration of life among the wealthy 
classes is twice as long as it is among the poor. Thus, by a cruel 
irony of fate, the smaller the share of wealth that falls to a man's 
lot, the heavier is the tribute that he has to pay to disease and 
death. Numerous statistical calculations show that in England 
the average duration of life among the wealthy classes is from 55 
to 56 years; whilst for the working classes it falls to 28 years, or 
even lower. According to M. Loua {Economiste Franqais, 1882, 
I, page 179), the following would be the figures of the annual mor- 
tality in Paris : — 

The rich and well-to-do classes . 156 out of every 10,000 inhabitants. 
The poor 285 " 10,000 " 

M. Leroy Beaulieu, in his work on the Distribution of Wealth 
(in the chapter entitled "Sisyphism and Pauperism") tries to 
establish a kind of compensation between the evils that result 
from indigence and those that proceed from disease and moral 
sufferings. ' He says : " What is the number of the poor when 
compared with that of the human beings who are afflicted with 
infirmities, with incurable or constitutional diseases, such as scrof- 
ula and phthisis ? In particular, what is it when compared with 
the still larger number of men who are tortured with poignant 
moral sufferings ? No doubt indigence is an ill ; but to the 
thoughtful mind it is one of the most benign and least spread 
evils that have ever afflicted civilized societies." This eminent 
economist forgets that poverty of itself is a cause of most poignant 
moral sufferings, and a most active cause of scrofula and phthisis ; 
and that therefore Fortune has not put in the two opposite scales 
of the balance the evils that afflict men, but appears, rather, to 
have heaped them together in one and the same scale. 



406 PRINCIPLES OF POLITICAL ECONOMY. 

In fine, the real complaint that can be urged against the dis- 
tribution of wealth is not so much its inequahty as our inabihty 
to perceive the reasons for this inequality. It is by no means pro- 
portional to the labor expended ; on the contrary, according to 
John Stuart Mill's bitter remark, the scale of remuneration appears 
to descend further and further, the more laborious the work be- 
comes, until finally it reaches a point where the most severe toil 
scarcely suffices for the necessities of existence. Still less does it 
seem to be proportional to men's merits or virtues. The antithesis 
between the man who is poor but honest, and the scoundrel who 
is fortunate and wealthy, is a commonplace which is as old as the 
world, but it never fails to be true in the present. 

III. Why the Problem of Distribution is so hard to solve. 

If wealth were in excess, it is obvious that the question of dis- 
tribution would never arise, for then we might draw at our own 
free will from a fount that would never be exhausted. Do men 
ever wish to make a fair distribution of spring water? Yes, but 
only on the oases of the Sahara. But where wealth is deficient, 
the question of distribution does arise, and the smaller the amount 
to be divided, the more acute is the controversy. The survivors 
on the raft of the ship Medusa fought with knives for a crust of 
bread. 

Though we are not exactly in that position, we are nearer to 
the second than to the first of our hypotheses. Contrary to the 
popular belief, the amount of wealth produced is small and insuf- 
ficient, even in the professedly wealthy countries. Hence the 
acuteness of the problem of distribution and the difficulty of 
effecting a solution ; for clearly the most skilful distribution in the 
world will never succeed in allotting large shares when the whole 
mass to be divided is small. It is easy to give an irrefutable 
proof of this. The sum total of the wealth that exists in a country 
such as France is reckoned to be ^^8, 000,000,000, though some 
statisticians put it at ;j^8, 800,000,000, or even ^9,600,000,000, 



DISTRIBUTION. 40/ 

whilst Others, whose calculations appear to be the most reliable, 
reduce the total to ;£7,200,ooo,ooo or even ;^6,400,ooo,ooo. 
Let us take the first-mentioned figure and divide it by the number 
that represents the population of France, or 38,000,000; the 
quotient is a little over ^210. If we were to suppose then that 
all the existing wealth were equally divided between all French- 
men, each family (taking four persons to a family) would receive 
as their share a capital of about ^800, half of which would be in 
land. Is it urged that that would in any case be better than the 
present situation ? We must certainly recognize that it would be 
a very modest position for every one, and that it would be far 
more like poverty than wealth. If the same calculation were 
applied to England or the United States, virtually analogous 
results would be arrived at, but in every other country they would 
be far lower. Thus the total wealth of Italy is estimated to be 
only ;2^2, 1 60,000,000, and that would give a quotient of ^Q'jo per 
head, or about ^280 for a family, and more than half of this 
would be in land. (Pantaleoni, Giorjiak degli Economisti^ 
August, 1890.) 

We may arrive at the same conclusion in another way by con- 
sidering how few the rich are, even in the so-called wealthy 
countries. They never constitute more than an infinitesimal pro- 
portion of the population. According to M. Paul Leroy-Beaulieu, 
the number of millionnaires in France is 20,000 at the veryj 
outside, and that estimate appears to be confirmed by various 
observations made in those countries in which the establishment 
of an income tax allows, of the drawing up of far more exact 
statistics. Thus in Prussia, in 1890, out of a population of nearly 
29,000,000, there were only 232,477 families that had an income 
of more than 3000 marks, and merely 1260 families that had an 
income larger than 54,000 marks. 

In Paris, in 1884, there were reckoned to be 758,981 dwelling- 
houses, and the rental of only 6672 of these was above ^240; 
though the official valuation is generally about a third less than 
the real value. Nevertheless, as a wealthy family in Paris never 



408 PRINCIPLES OF POLITICAL ECONOMY. 

spends less than ^£200 or ;£30o on its rent, we can thus appre- 
ciate the small number of the rich, even in that great city where 
the wealthy of all parts of the world are wont to congregate. 

All this shows the magnitude of the mistake made by the public, 
and by the greater part of the sociahsts, in imagining that to 
solve the social question it would be enough to cut off a portion 
of the share of the rich and increase the share of the poor by such 
parings. Even were it possible to carry out this crude and child- 
ish plan, it would only increase the income of the immense major- 
ity in a ludicrously small proportion ; in an exactly similar way, if it 
were possible to distribute uniformly over the whole area of French 
territory the mass of all its mountains, Mont Blanc included, the 
surface of the soil would be raised only by a few feet. 

People fail to see that the fact of there being so many men in 
the world who have so small a share of wealth does not spring 
merely from the unfair distribution of this wealth ; the chief reason 
is that there is not enough of it. The gravity of the problem does 
not arise so much from the unequal distribution of goods — for 
that might be fairly easily overcome — as from their insufficiency. 

The enunciation of the fact leads to this : whatever mode of 
distribution may be proposed, it should always be subordinated 
to the mode of production ; however conformable the plan might 
otherwise be to the ideal of distributive justice, it should be sternly 
jejected if it might lead to a diminution of production. Other- 
wise the attempt at cure would aggregate the disease. The sine 
qua non is, ^'not to discourage productive activity." On this 
reef we shall find that all socialist systems founder. 

The solution should comply with another condition which is 
partly bound up with the foregoing : " individual liberty must not 
be destroyed." Even admitting that it is possible to discover an 
ideal formula of distributive justice, should we not then require 
some recognized authority to assign each man his share, similar 
to the mother who cuts each child its respective piece of cake ? 
Would not regulation in distribution necessarily entail regulation 
in production and in labor? Could the prescribed authority 



DISTRIBUTION. 4O9 

count each man's sheaves at the harvest-home and still leave him 
free to sow and plough as he chose ? That is scarcely probable ; 
for, just as the mode of distribution is largely determined by the 
mode of production, so too the latter reacts on the former; in 
fact, they are inseparable. We should therefore require a self- 
acting and literally automatic mode of distribution, which would 
not need the constant interference of a distributive agency — such 
as the mode now in vogue, which we have briefly described. This 
second condition does not seem to be much more easy than the 
first one. Let us now turn to the solutions proposed by the 
various schools of socialists. 



CHAPTER II. 
THE SOCIALIST SOLUTION. 

I. Communism. 

T.ET US suppose, after the fashion of social reformers of other 
times, that we are transported into some new world, into some 
kingdom of Utopia ; let us there make a clean sweep of every- 
thing that might interfere with us, — traditions, customs, or laws, — 
and then try to discover some principle of distributive justice that 
might serve us as a rule for the distribution of wealth. 

But it may be urged, to begin with, what is the use of dividing 
at all ? All sharing will cause further inequalities ; why not then 
leave everything in common between the members of society just 
as between the members of one family ? This is commu7its7n, the 
simplest and the most ancient of all the systems that have been 
proposed. 

Very many authors have conceived more or less communistic 
theories ; to begin with, Plato in the Republic, or F^nelon in his 
Telemachus ; but the only ones who can be regarded as the 
leaders of a school are Gracchus Baboeuf, Robert Owen, and 
Cabet. 

Baboeuf, who took the name of Gracchus because he believed 
that the tribune who obtained the passage of the Agrarian Laws 
was the inventor of equal sharing, was the leader of the conspiracy 
of the " Equals " under the Directory, was condemned to death, 
and was executed in 1797. He had set forth a regular plan of 
social organization in a programme which began with the words, 
" Nature has given each man an equal right to all things." ' But 
this movement was revolutionary rather than sociahstic. 

On the other hand, Owen, who was born in Wales in 1771 
410 



DISTRIBUTION. 4I I 

and died in 1 85 7, was a great philanthropist, and at the beginning 
of this century paved the way, at his factory in New Lanark, for 
all the great philanthropic institutions of our own time j namely, 
limitation of the hours of labor, prohibition of child labor, work- 
men's co-operative societies, savings banks, provision stores, and 
even secular schools. But not content with this, he formed dreams 
for the organization of communist societies, and tried to found 
them in the United States in the year 1826 under the name of 
New Harmony. After a few years of success, the project fell 
through. 

Cabet, the author of Icaria^ one of those numerous romances 
which have imitated Sir Thomas More's Utopia, started in 1848 
the society of Icarians, which still subsists in the State of Iowa. 
But it has been grievously troubled by intestinal quarrels ; a few 
years ago it split up into two parts, and now it has only a very 
small number of members, seventy- five of whom belong to " Young 
Icaria." Moreover, its financial position is not of the very best. 

Fourier, for his part, is wrongly classed among real communists, 
though he is generally reckoned as such. He was only a com- 
munist in the matters of consumption and production, and not so 
in the least as regards the distribution of wealth. To his mind 
life in common in the phalanstery was only a means of organizing 
production and consumption under more economic conditions, 
and its aim was certainly not to establish equality among men. 
In fact, as Fourier expressly said, it ought to leave untouched not 
only the inequalities that result from labor and talent, but those, 
too, that proceed from unequal returns to capital. Reference may 
b£ made to my httle book on Charles Fourier. 

To return : whatever may be said of it, communism is not a 
purely fanciful organization, for it has certainly existed, if not at 
the beginning of all human societies, as has been too positively 
asserted, at any rate at the foundation of a great number of them. 
(See Sir Henry Maine's Village Communities in the East and 
West ; M. Viollet's Le caractere collectif des pi'emieres pro- 
prietes immobilieres, and M. de Laveleye's La propriete et 



412 PRINCIPLES OF POLITICAL ECONOMY. 

sgs formes primitives.) Of the many remains of this primitive 
condition we may instance that institution of pubHc symposia which 
was so widespread in the cities of antiquity. 

Even to-day, not to mention Roman Cathohc bodies, the United 
States contain somewhat numerous and well-marked examples of 
societies which are altogether communistic, and some of these 
have already lasted for nearly a century. If their results have not 
been very great, their very existence has shown that community 
of goods is a social organization which is realizable under certain 
conditions. Reference may be made to Nordhoff, Commimistic 
Societies, and Richard Ely, The Labor Movement in America. 
There are between 70 and 80 of these societies, with a member- 
ship of from 6000 to 7000, and all their property reckoned together 
gives a total which is by no means small, say ;^5, 000,000 or 
;£"6,ooo,ooo. That would come to about ^800 per head, a pro- 
portion which is far larger than the average share of wealth which 
a similar calculation would give for the members of the most 
wealthy of our civilized societies. (See above, page 407.) 

Although the experiment has only been made on a small scale, 
yet it shows in particular that the communistic system is not 
absolutely incompatible with labor and production, as has been 
somewhat too hastily asserted. The members of these societies 
are usually men of the average amount of industry. No doubt 
they do not feel a stimulus equal to that given by private property, 
for each man works and produces on the behalf of all, instead of 
working and producing only on his own account ; but, when this 
qbjection is urged against the communistic system, it is usually 
forgotten that in our modern societies this very stimulus is lacking 
for the great majority of men ; namely, for all those who, in their 
capacity of receivers of wages, have to work only on the behalf 
of others. Now there is reason to believe that a member, who 
works for a society of which he himself forms a part, will put more 
zest into his work than the wage-earner, who only labors for an 
employer. Thus the argument is a double-edged weapon and 
cuts those who use it. 



DISTRIBUTION. 413 

But the real cause of the discredit into which communistic 
societies have fallen is the fact that the conditions, which are indis- 
pensable for their success, are absolutely incompatible with the 
tendencies of modern societies. Proof of this can be afforded by 
a consideration of these conditions, such as may be observed in 
the few communistic societies which have prospered. 

Firstly. Very small societies are required, whose members 
shall not be more than a few hundreds or a thousand. Com- 
munists themselves have understood this well enough, for Fourier 
fixed the maximum number of persons in his phalanstery at 1500, 
and Owen's figure was between 500 and 2000. Small numbers 
obtain in those societies that are observable in the United States. 
The most extensive of all, the society of Shakers, is subdivided 
into several communities, and the largest of these, that of Mount 
Lebanon, had rather less than 400 members in 1876 (see Nordhoff, 
Communistic Societies^ . 

The reason for this is quite apparent ; as the number of mem- 
bers increases, the interest of each member in the success of the 
society diminishes. When the society is very small, each man can 
gain in a certain measure by his own personal efforts ; but in a com- 
munistic society which comprised all Frenchmen, each man would 
only be interested to the extent of one thirty-eight-millionth, and 
that fraction is far too minute to excite any one's zeal. 

It would be useless, as some communists propose, to try to 
turn the difficulty by only establishing the community in the heart 
of the local parish, and by dividing a country like France into 
36,000 of these. Nothing would be gained by that, for there 
would be rich districts and poor districts, and inequality of per- 
sons would thus be replaced by inequality of groups. 

Secondly. We should require societies subjected to the severest 
discipline. For it is obvious that the equality which such associa- 
tions demand is incompatible with all encroachments on the part 
of particular individuals with a view to consuming more than their 
share, and with all desire of emancipation so as to obtain relief 
from the task allotted them. The institutions where hfe in common 



414 PRINCIPLES OF POLITICAL ECONOMY. 

reigns — convents, barracks, and public boarding-schools — are 
those in which obedience is obligatory. The history of the Repub- 
lic of Icaria offers us a wealth of instruction in this matter. We 
see the neophytes ceaselessly striving to shake oft a rule which they 
found to be unbearable, and Cabet struggling in vain to obtain 
dictatorial power on behalf of the community. The comparative 
lack of success of this society was precisely due to the lax disci- 
pHne observed therein. 

We must also remark that in almost all cases rehgious feeling, 
pushed to the verge of fanaticism, has alone been strong enough 
to preserve in these communities that discipline which is indis- 
pensable for their existence. All the communistic societies in the 
United States, the Icarians alone excepted, are religious sects ; 
and the republics formed by the Jesuits in Paraguay constituted a 
true theocracy. 

But nowadays the minds of men are not at all inclined to accept 
the yoke of any authority whatsoever, least of all a religious yoke ; 
when such a feeling is current, every system of communism seems 
doomed to fail. However, with a lack of logical consistency which 
is really amusing, the only socialist school which still preaches 
communism is the anarchist section. Still, this contradiction may 
be partly explained when we add, that the mode by which the 
anarchists wish to reconstruct society as a whole is the formation 
of a multitude of communistic bodies, which shall be free and 
autonomous. 

II. Collectivism. 

Collectivism is a milder form of communism. It proposes to 
leave undivided only the instruments of production, i.e. land and 
capital, and to divide the products according to certain rules that 
we shall study in the next chapter. 

Unlike the other social schools, collectivism cannot altogether 
be connected with the name of any particular man.-^ Forty or fifty 

1 In the Revue d''Econo7nie politique for January, 1891, Professor Gide gives 
Cesar de Paepe the credit of inventing the name Collectivism. — J. B. 



DISTRIBUTION. 415 

years ago Colins in Belgium, and Pecqueur and Vidal in France, 
first laid down, that distinction between instruments of production 
and objects of consumption which is the characteristic feature of 
the system. But it received all the weapons with which it attacks 
the present organization of society from Ferdinand Lassalle, and 
even more from Karl Marx (by the pubHcation, in 1867, of his 
famous book on Capital) : both of these, by the way, were Ger- 
mans and Jews. Up to the present, however, the nature of collec- 
tivism has been negative and critical rather than positive and 
organic. Its object has been to demolish rather than to construct, 
and consequently we shall have to more particularly examine this 
system when we study the various social institutions (e.g. profits, 
dividends, wages, etc.). However, its plans for a future society 
have been set forth in Mr. Gronlund's book, entitled the Co-oper- 
ative Com7nonwealih. 

Collectivism has received the adherence of all present-day 
socialists, with the exception of the anarchists, who have remained 
constant to pure communism. It does not profess to be a plan 
for constructing a new society, based upon any a priori principle 
of justice. Its object, whether well-grounded or not, is to repre- 
sent the state of affairs towards which modern societies are tend- 
ing, being urged on, whether they will or no, by the laws of a 
necessary evolution. The partisans of collectivism assert that, in 
consequence of the development of large industry, wholesale trade, 
and the holding of extensive estates, in all our societies individual 
production is disappearing and is being replaced by collective pro- 
duction. Now, since all the instruments of production, mines, 
railways, ships, banks, and machinery, are daily passing from pri- 
vate owners into the hands of great limited companies, or some- 
times of the State, we ought soon to witness the last stage of an 
evolution which will definitively divert all this class of wealth 
from the sphere of private property and will place it in the collec- 
tive estate of society at large. 

They hope that this nationalizing of all active wealth (I mean by 
that, wealth which is employed in production) will be enough to 
put to flight most of the vices of our present social organization. 



4l6 PRINCIPLES OF POLITICAL ECONOMY. 

In their opinion it would cause the disappearance of the ex- 
treme inequality by which we are afflicted ; for the only cause of 
these inequalities is the accumulation of capital or of land in the 
hands of certain classes. This capital grows as speedily as a roll- 
ing snowball, through the laws of inherited property, by being lent 
out at interest, and by being made to yield returns. This latter 
process, according to Karl Marx's theory, is merely a mode of 
making profit out of other people's work. But, as soon as private 
individuals were inhibited from holding capital, this monopoly 
would have to vanish along with all its consequences. 

Idleness would have to go ; for as soon as no one could hold 
land or capital as his own, there would clearly be no longer any 
room for a class of persons of independent income who live on 
their investments or on their rents. 

Pauperism would cease to exist ; for society at large, as soon as 
it assumed the possession of all land and all capital, would be 
bound to provide work for all those who were able to work, and 
to guarantee at least the existence of those who were incapable 
of working. 

In another way, as collectivism retains private property in arti- 
cles of consumption together with the right of their free disposal, 
it seems to promise an avoidance of the dangers of communism 
and a complete assurance of individual liberty. 

If we were to enter on a critical study of this system, it would 
demand long digressions. We must therefore refer the reader to 
M. Leroy-Beaulieu's book on Le Collecttvisme, and to the numer- 
ous passages in which we speak of collectivist theories. 

We shall here confine ourselves to observing that the distinction 
between instruments of production and articles of consumption, 
upon which the whole system of collectivism has been built, 
appears to be a very fragile foundation. 

In the first place, this distinction is valueless from a moral point 
of view. The instrument of production, whether it be called capi- 
tal or not, may be the product of labor just as well as any article 
of consumption, and may consequendy fall under the category of 



DISTRIBUTION. 417 

legitimate property. Common sense refuses to accept the notion 
that although^ the right of private prop'='rty can be legitimately 
exercised on a carriage or coach, because that is an article of con- 
sumption, the smack and the nets of a fisherman may not fall under 
that right because they are instruments of production. True 
enough, collectivists may reply, and indeed have already replied, 
that they do not propose to confiscate capital which is merely 
used as an instrument of individual labor ; they confine their pro- 
posals to capital which enables its possessors to tnake other men 
work on their account ; e.g. factories, mines, and large farms. But 
then the distinction only comes to this, that large capital, and riot 
small capital, will be confiscated ; hence it loses all scientific value 
and becomes nothing more than a commonplace system of levelling. 

Nor is the distinction more acceptable from a practical point 
of view. For we have seen that any articles of wealth may, 
on account of their different properties, be reckoned as capital 
as well as be classed among articles of consumption, and that 
the quality of being capital depends far less on the nature of 
the wealth than on the use that is made of it. Any article of 
consumption may become capital by the mere fact of being em- 
ployed productively. Thus, by prohibiting private property in 
capital, the collectivist system merely arrives at this result ; it 
refuses to allow private persons to use their wealth pi'o due lively, 
and only grants them unproductive employments. For instance, 
it allows them to use corn for eating, but not for purposes of sow- 
ing. In this manner the result attained is a paradoxical one, and 
scarcely appears to be reassuring for the future of production. 

It must further be remarked that in order to enforce such a 
prohibition, i.e. to prevent every person from freely getting profit 
out of that portion of wealth which has fallen to his lot, and over 
which even the collectivists recognize that he has a legitimate right 
of property, — in order to effect this, measures must be resorted 
to which are grievously harassing to liberty. The possessor must 
be prevented from selling his wealth, from lending it, from making 
it yield returns ; but when the rights of property have thus been 



41 8 PRINCIPLES OF POLITICAL ECONOMY. 

mutilated of their most essential attributes, they will become merely 
fictitious rights, and we shall fall back into communism pure and 
simple. 

If, on the contrary, collectivism is strict in respecting the liberty 
of individuals, if it means to leave their rights of property intact, 
at least over that share of wealth which it recognizes them to hold, 
the right of disposing of it for nothing or for an equivalent, during 
lifetime or after death, in that case, however reduced the amount 
of private property may be, it will be enough for the reconstruc- 
tion in a few years of a social order which will scarcely differ from 
the existing order of things. In our opinion, then, collectivism is 
deluded in its hopes of finding the golden mean between commu- 
nism and individualism, ^.nd will not escape the necessity either 
of plunging into the first or of going back to the second of these 
two systems. 

III. The Different Formulae for the Division of Wealth. 

Inasmuch as community of goods is incapable of realization, 
and as we cannot remain in a state of non-division, we must cer- 
tainly look for some method of sharing. Even collectivism has 
been obliged to search for one, if not for capital, at any rate to 
be applied to incomes. 

But the problem is not an easy one, even when we transfer it 
to a purely speculative plane by putting away from us the memory 
of all precedents. It is useless to say that the division must be 
made conformably with justice ; for what is justice ? The render- 
ing to each man of what is due to him, suiiiii cuique tribuere. 
But that is precisely where the difficulty lies ; how are we to 
determine what each man ought to receive ? What criterion will 
enable us to fix this? 

The special aim of the socialist systems has been to regulate 
the distribution of wealth according to certain principles of justice, 
and each respective school has identified itself with one or other 
of the four following formulae : — 



DISTRIBUTION. 4I9 

An equal share for each man. 
Each man according to his wants. 
Each man according to his capacities. 
Each man according to his labor. 

Let us examine each of these in turn. 

Section i. An Equal Share for Each Man. 

We only mention this first formula for the purpose of showing 
that it was once used, for socialists themselves gave it up long ago ; 
there are now no "sharers," in the literal sense of the word. The 
socialists, who " make for perfect equality," have ceased to be 
sharers, and have become communists, which is not at all the same 
thing. Nay, it is quite the reverse, for communism is not in the 
least a system of sharing ; it is the negation of all sharing. 

Still, it is probable that, on account of its simplicity, this system 
was practised in very many primitive societies. For the legislators 
of old whose names have been handed down to us by history or 
legend — Minos, Lycurgus, and Romulus — seem to have adopted 
the plan of an equal division of land, for each family, if not for 
each person. After a few generations this pristine equality was 
necessarily disturbed, and had to be restored by new divisions 
which were made at fixed intervals. This old custom continued 
to exist during the Middle Ages in many parts of Germany and of 
England, and it is still to be found, though in attenuated shape, 
both in Russia and in Asia. 

An application of this system of equal division may be seen in 
the mir, that celebrated organization of the Russian communes. 
In the ini7', land is periodically divided every three years or for 
longer terms, and during such periods each family is entitled to 
the independent enjoyment of its share. 

No doubt such a system can be carried out, if need be, in primi- 
tive societies which comprise only a small number of men, and are 
acquainted with but one class of wealth, — to wit, land. But a man 
must have lost his senses to dream, even for a moment, of applying 



420 PRINCIPLES OF POLITICAL ECONOMY. 

it to societies like our great modern nations, in which riches are of 
such varied kinds and those among whom they are to be divided 
are so numerous. 

Section 2. Each Man according to his Wants. 

This formula was used by Louis Blanc in 1 848, and is to be 
found in the fifth chapter of his Oi'ganisation du Travail. He 
says, " God forbid that we should regard equality of wages as a 
complete realization of the principle of justice ! The true formula 
is : Let each man produce according to his aptitudes and to his 
strength, and let him consume according to his wants.^^ 

If this formula means that the best system of distribution would 
be that which guaranteed to each man all that was necessary for 
his wants or his desires, so evident a proposition would be disputed 
by no one. But, for each man to be assured of a quantity of wealth 
which should be enough to satisfy his heart's desire, the amount of 
wealth in existence would have to be unbounded, or at any rate 
superabundant, and in that case all anxiety as to distribution would 
be needless, for the question would cease to exist. Unfortunately, 
we have not yet reached that happy state. Certainly a town can 
arrange for the distribution of water among its inhabitants, accord- 
ing to their respective requirements, if indeed water is plentiful 
enough for that ; but it would find it of considerable difficulty to 
grant them an unlimited supply of bread, wine, meat, clothing, 
house-accommodation, furniture, carriages, and so forth. 

We are therefore obliged to modify the formula, and to content 
ourselves with saying that wealth shall be distributed iji p?-oportion 
to each man's wants. But such a principle is open to most serious 
objections. 

First of all, it presupposes a valuation of men's wants ; but we 
are absolutely without any common measure which we could use 
for the making of such an estimate. To what extent do the wants 
of an artist exceed those of a manual laborer? 

Further, it requires that we should form a judgment actuated by 
the utility and the morality of these wants ; for it is obvious that 



DISTRIBUTION. 421 

the basis of distribution cannot be constructed out of any chance 
wants or desires, but must be made only out of those that we 
regard as lawful. Otherwise we should be putting a premium on 
all sorts of covetousness. But what authority shall we set up thus 
to hall-mark men's wants, to accept the lawful and to reject the 
unlawful ? 

Even if we were to put out of reckoning all the practical impos- 
sibilities that we have just noted, we should still have to consider 
whether it is really conformable to justice to declare that the man, 
who has few wants and simple tastes, shall therefore be entitled to 
a smaller share than the man whose physical or intellectual wants 
are far more exacting. I fail to see why justice should require 
that the man who has twice my appetite should receive double my 
share of food. In any case we can easily imagine that a society 
based on such a principle would speedily present a very pretty 
picture. 

When the formula is pressed a little further, it comes to this : 
the man who is married or burdened with a family ought to have 
a larger share than the bachelor. Put in these terms, it is abso- 
lutely undistinguishable from the formula of equal sharing or of 
communism. As a matter of fact, Louis Blanc himself foresaw 
these consequences, and the sociaHsts, who now adopt the formula, 
are merely communists. 

Section 3. Each Man according to his Capacities. 

Saint-Simon, on his death in 1825, left behind him a politico- 
religious system which was .more or less incoherent. But a pow- 
erful school, which bore his name, literally fascinated the most 
distinguished thinkers of that period. Two of his disciples, Bazard 
and Enfantin, added largely to his teaching, and made it far more 
precise, especially from an economic point of view. 

The heading of this section forms a portion of the famous motto 
of his school : " Each man according to his capacities, each man's 
capacities according to their works." But who is to be charged 
with the task of determining each man's capacities and merits, 



422 PRINCIPLES OF POLITICAL ECONOMY. 

and of appraising the remuneration which is his due? The Gov- 
ernment ; it will be the Government's duty to appoint every indi- 
vidual in every class of work, just as nowadays it appoints public 
servants and awards them a rank and a salary which are in pro- 
portion to their presumable merits. 

This is explained in the Doctrine de Saint-Simon, seance 7 / 
" As each man is remunerated according to the service he per- 
forms, what is now called an income will henceforth be merely a 
salary or a pension." Further details are given in the twelfth 
article of his Economic Politique, which deals with the Organisa- 
tion Industrielle : " The mayor, that is to say the captain of indus- 
try, must always busy himself with obtaining such information as 
will enable him to tell whether any one citizen, more than any 
other, is fit to cultivate a farm-land or take charge of a workshop. 
It is the mayor that allots a task to each man according to his 
capacities ; let us add that it is he, too, who fixes the emoluments 
or the income accruing from the task." 

Under these circumstances the Government will have to be an 
infallible pope, just as the priest is in the Saint-Simonian system j 
for how else could we dream of granting it so enormous a power? 
The Saint-Simonians get clear of the difficulty by saying that the 
distribution of wealth in this manner will be neither worse nor 
more unjust than it is now, for that at present it is distributed only 
according to the accident of birth. That is true ; but public opin- 
ion is certainly far less shocked at seeing material fortune distrib- 
uted by the accident of birth than it would be if it were awarded 
by the favor and arbitrary will of the Government. Nothing fur- 
ther would be gained if the choice of the Government were to 
be replaced by a system of competitions and competitive examina- 
tions, which could be applied to all classes of labor and all kinds 
of occupations, from the very lowest up to the very highest. 

We hold that, while such a system is worthless in practice, it is 
equally so from the point of view of justice. . 

Intellectual or physical superiority ought not to be a claim to 
wealth. It is a sufficient privilege of itself, and need not be added 



DISTRIBUTION. 



4^3 



to by a. new privilege ; namely, the right of demanding a larger 
share of material wealth. Thus M. Renouvier, in the seconcf 
volume of his book, La Morale, says : ^'' If we are to take public 
opinion as our guide, the most intelligent and the most skilful 
should be regarded, as it were, as natural creditors of the average 
man. Such opinions are grave offences against moral law." 

Section 4. Each Man according to his Labor. 

This formula may be taken, and has often been taken, in two 
very different senses, which we should distinguish between with a 
care which is sometimes lacking. 

It may mean, " for each man the product of his labor " ; in 
other words, each man's share should be the things that he has 
produced. At first sight this formula seems thoroughly in accord- 
ance with our idea of justice, for what could be more just than to 
recognize each man's right to the portion of wealth which he has 
created and which would not be in existence but for him ? It also 
seems very easy to apply, for what could be simpler than to let 
each man have for his share the articles he had produced ? That 
does away with all calculations, all interference of any supervising 
authority ; the law-giver has not to apportion the shares, — for 
each individual carves out his own when he creates it, — and has 
only to prevent encroachments on a neighbor's portion. Finally, 
of all formulae, it seems to comply the best with that cardinal con- 
dition we should never lose sight of, the stimulation of production. 
For what exhortation could incite to individual activity more 
powerfully than the following : " Do what you can or what you 
will, and keep for yourself what you produce ; that will be your 
portion. If your share is a large one, so much the better for you ; 
if it is scanty, then so much the worse for you." 

Yet in spite of its apparent simplicity, this formula leaves much 
to be desired, both in theory and in practice. Instead of being 
so easy to apply, it is absolutely incapable of application. 

It might, indeed, be of service in a very primitive society where 
division of labor did not exist, under a system of small proprietor- 



424 PRINCIPLES OF POLITICAL ECONOMY. 

ship and small industry, in which each man, living by the labor of 
his own hands, only produced what was necessary for his con- 
sumption, and only consumed what he produced. Under such a 
system no social question need arise. 

But in our great modern societies, division of labor, on the one 
hand, and large production, on the other, do not usually allow us 
to recognize and to determine what is the product of each man's 
labor. Should we not fail if we tried to make this calculation for 
some large business, say for a railway company, or even for an 
ordinary workshop ? As soon as production ceases to be individ- 
ual and becomes collective, our formula, " to each man the prod- 
uct of his own labor," loses all its meaning. 

Stanley Jevons has compared the process of production in which 
the three factors of production are joined together, to the kitchen 
of the three witches in Macbeth, who throw into their cauldron 
and stir up therein the most heterogeneous substances for the 
purpose of brewing their " hell-broth." In such a blend as this 
how are we to set about finding what each man's share should 
be? What analysis shall we use, what law shall we follow, so as 
to arrive at this determination ? 

Further, even were the formula applicable, it would, if taken 
literally, lead to consequences as little to the taste of orthodox 
economists as of socialists. On the one hand, it would lead to 
the abolition of inheritance and of landed property ; of inheritance 
because the heir cannot assert that the property he receives by 
inheritance or by gift is the product of his own labor ; of landed 
property, because the land, the earth, is the product of no man's 
labor. On the other hand, it would lead to the narrowest individ- 
ualism, to the complete negation of the solidarity which is the 
binding cement of all human society ; thus it would do away with 
all reUef to the needy ; for as paupers produced nothing, their 
portion, too, would be nothing. In fact, the formula "for each 
man the product of his own labor " is only the scientific setting 
of the familiar adage " every man for himself" Does any one 
wish to get an idea of the working out of this formula on a large 



DISTRIBUTION. 425 

scale? if so, let him go to some village in France occupied by 
small peasants, and he will see each man bending over his own 
bit of land which he pertinaciously digs, living only for his labor, 
and not caring the least in the world for what happens to his 
neighbors, or even to his relations. 

Let us then desist from applying in its absolute sense the for- 
mula "to each man the product of his own labor," and let us 
modify it and say, "each man according to his labor." This 
formula deals not with the results of the labor, but with the labor 
itself; it takes into consideration, not the product obtained, but 
the effort made. 

Measured by the standard of absolute justice, this doctrine 
appears to us to have firm foundations and to be superior to any 
of those previously examined. Indeed, it is equitable to appor- 
tion each man's remuneration according to the trouble he has 
taken, the sacrifice he has made, and the good will he has mani- 
fested, for, as Kant says, " of all things that can possibly be con- 
ceived, one thing alone can be called perfectly good, and that is 
a good will." 

This is altogether independent of any extrinsic circumstances, 
such as the superiority or inferiority of his physical or intellectual 
powers, and the favorable or unfavorable opportunities which may 
have caused his work to be more or less efficacious. By the 
criterion of absolute justice, the labor of a crossing-sweeper seems 
to deserve an equal remuneration to that given to the labor of 
a James Watt or a De Lesseps, if indeed it has been conscien- 
tiously performed, that is tp say, if the man has done all that he 
could possibly do. That is our conception of the nature of Divine 
Justice when we declare that it will mete out to men recompense 
and punishment according to what they have striven to do, rather 
than to what they have actually done, and that intentions and not 
results will have the more weight in its decisions. 

But for the application of this formula we require some actual 
measure by means of which we may estimate and compare the 
exertions made by workers. Now it is absolutely impossible for 



426 PRINCIPLES OF POLITICAL ECONOMY. 

US to obtain such a scale, unless we profess to measure the results 
of labor by the product obtained, which would be to revert to the 
preceding formula. The dynamometer can give us information 
as to the amount of muscular strength possessed by a man, but it 
cannot teach us the amount of fatigue the exertion of it has cost 
him. 

Yet the collectivist school boasts of having found this common 
measure in the amount of time bestowed on the work. According 
to this system each man's remuneration should -be in proportion 
to the number of hours he has devoted to the labor of production. 
An hour's labor wonld therefore be the desired common measure. 
This was the method advocated by Karl Marx, who was formerly 
the leader of the Internationale, and who is still regarded as the 
teacher and the oracle of the collectivist school. He died in 
1883, but, as we have already mentioned, he published in 1867 
his deservedly famous book on Capital. He there says : " The 
quantity of labor is to be measured by its duration in time. The 
labor which forms the substance of the value of commodities is 
homogeneous human labor, the expenditure of the sai7ie human 
lab 07ing powers r 

But how foolish is this professed ability to estimate the exertion 
expended in any task by its duration ! We cannot measure our 
pains any more than our pleasures by the dial of the clock. We 
all know that the farm-laborer who works " by the job " does in 
the same time thrice the amount of work, expends three times as 
much strength, and takes three times as much pains, as the man 
who works by the day. In the above example we have only con- 
sidered labors of the same nature ; for who would ever dream of 
measuring by the time occupied the work done by the man who 
clears a plot of ground and by the painter who covers his canvas ? 
why not measure them by the yard ? 

Long before he knew Karl Marx's theory, Proudhon had said : 
" Putting aside all the differences inherent in various kinds of 
work, time is an arbitrary measure to employ, a real Procrustes' 
bed, on which struggles mutilated or distended labor, and on 



DISTRIBUTION. 42/ 

which liberty and equahty breathe their last." And long before 
him Moliere bad said more simply in the Misanthrope : — 

" Voyons, Monsieur, le temps ne fait rien a I'affaire." 

Moreover, is there not reason to fear that idleness will fare far 
too well under this new system ? for if the right to a double share 
of remuneration can be obtained by taking twice the time over 
one's work, though the method will be highly advantageous for 
individuals, society as a whole will find it to be exceedingly 
dangerous. 

Karl Marx answers this objection by stating that the time neces- 
sary for the production of any article must be fixed and rated 
according to statistical information. Thus, if we know the number 
of bushels of corn produced yearly in France, the number of labor- 
ers engaged in producing them, and finally the number of hours 
occupied by these men, it will not be difficult to find by simple 
division the time which is socially necessary, that is to say, the 
average number of hours that is required, for the production of a 
bushel of corn. 

This ingenious arrangement is a partial answer to our criticism, 
but only so far as it departs from the principle which was suggested 
for application. If we reckon ten hours to be the length of the 
social labor which is necessary, on the average, for the production 
of a bushel of corn, it is clear that the skilful or fortunate man, 
who has been able to produce two bushels in the same period of 
time, will receive a double share, whilst the man who has been 
clumsy or unlucky enough to produce merely half a bushel, will 
get only half a share. This is no longer the principle of each man 
according to his labor, and according to the exertions he has 
made ; no ! it is the principle of each man according to the results 
of his labor, and that is quite a different thing. 

If we really wish to abide by the ideal of justice which this for- 
mula proposed to realize and for which it was invented, we must 
deal with individual labor and not social labor : either justice is 
individual, or it is not; it has only to do with the striking of 
averages. 



428 PRINCIPLES OF POLITICAL ECONOMY 



IV. Why there is no Solution. 

Thus the end that we are pursumg eludes our grasp ; we cannot 
find any system of distribution which completely satisfies our idea 
of justice, or those that we can find are not applicable. 

It is useless, then, to persist in this vain pursuit. Let us con- 
fess that there is no formula of distributive justice, i.e. a formula 
which can solve the social question. Cairnes, in his Leading 
Principles of Political Econo7ny, arrived at this conclusion, after 
having made a critical examination very similar to our own. Jus- 
tice never resides within, the limits of a formula, or, if by chance 
a suitable formula is thought to be found, it proves to be injustice : 
summum jus summa injuria. 

Society is not formed by the logical development of an a priori 
principle ; it is the resultant of a collection of very complex facts, 
some more or less conformable, others more or less opposed, to 
our idea of justice ; e.g. occupation or conquest, customs or laws, 
labor or saving. We can only take society as it is, its good and 
its bad points together, and strive to eliminate the causes of jus- 
tice which it conceals and to develop the germs of justice which it 
contains. The social question will be solved, first by guaranteeing 
each man the minimum without which he is in danger either of 
not becoming, or of not remaining, a " man," in the full sense of 
the word. The next step would be to give the working classes 
something more than that minimum ; viz. a growing share in the 
benefits of that civilization of which they form a more and more 
important factor. Further, any wealth which remained over should 
be put into the hands of those who can make the best use of it. 
The inequahty of the distribution of wealth would be of little harm 
if the rich were only stewards, who were entrusted with the care 
of making the best use of their wealth in the interests of all, and 
faithfully fulfilled that social function. History teaches us this 
very clearly ; we shall see that landed property, which men have 
unavailingly tried to fit in with some principle of distributive jus- 



DISTRIBUTION. 429 

tice, is very easily explained in its successive forms as a means of 
using land to ^ progressively better effect. 

This modification of the distribution of wealth may be brought 
about in certain measure by the natural working of economic laws, 
such as the law of supply and demand ; the exercise of individual 
initiative by means of association may also be of great service ; 
but in our opinion neither of these forces will be powerful enough 
without State interference. We do not mean that the State should 
be the distributor-general of wealth and should give each man his 
share, for we have already rejected such a scheme ; but the State 
can efficaciously influence the devolution of wealth by laws which 
relate to inheritance, decree taxes, regulate contracts such as loan 
for interest, land-rent, and the hire of labor, and in case of need 
impose compulsory expropriation in the public interests. Such 
influence has always been exerted by the State, — sometimes with 
great success, — but not in every case in conformity with justice or 
with social utility. 

Thus the striking differences which exist between the distribution 
of private fortunes in France and in England mainly arise from the 
difference between the laws relating to inheritance which obtain in 
the two countries. 

There is only one principle which regulates the distribution of 
wealth in present society ; this is private property, which will form 
the subject of our next chapter. 



CHAPTER III. 
THE RIGHTS OF PROPERTY. 

I. The Origin of the Rights of Property. 

The rights of private property are the rights that a person may 
exercise over a thing to the exclusion of every other person. 

The economists of the Bastiat school base this right upon labor ; 
according to them a man should be the owner of the things 
created by his own activity, which are, in a way, only the legiti- 
mate extension of his personality. But in practice the use of this 
criterion would expose us to strange deceptions. Say to a man, 
" Let us make an inventory of your possessions ; is this house the 
product of your labor? " The answer would be, " No, it came to 
me from my family." " Is that forest, are these fields, the product 
of your labor ? " "No, they are the product of no man's labor." 
" Those goods that fill your shops, the crops that fill your barns, 
were they produced by your labor? " " No, they came from the 
labor of my workmen or of my tenant farmers." 

Lawyers have been more prudent and more accurate. Labor 
does not figure in the definitions given of the rights of property 
either in the French Civil Code, (that child of the Revolution,) or 
in the texts of Roman Law. They accept property as a fact and 
define it by its attributes, without troubling to justify it. Nor do 
they even rank labor amongst the numerous modes of acquiring 
property which they specify. 

In these varied systems of legislation occupation is regarded as 
the primary fact whence the right of property takes its rise. And 
that is the true opinion, for as Graham Sumner excellently ob- 
serves in his book The Respective Duties of the Classes in Society, 
"Both historically and logically appropriation precedes produc- 
430 



DISTRIBUTION. 43 1 

tion. Early races regard possession as the best title to property. 
Priority of occupation is the only title which can be preferred to 
the right of the strongest." However, as occupation is only 
observable at the first beginnings of property, and as a return to 
origins is not often necessary in the substantiation of claims to 
property, in practice its place is taken by prescription. But pre- 
scription, just like occupation, is only a fact of possession, and is 
similarly devoid of any moral value. Let us then accept private 
property as an historical fact, and study it in its attributes and in 
its scope. 



II. What are the Attributes of the Rights of Property ? 

The right of property is defined by the Roman jurisconsults as 
the JUS utendi,fruendi^ et abutendi, and by the French Civil Code 
as " the right of enjoying and of disposing of things in the most 
absolute manner." But, as all law students know, the portion of 
this definition which is the only characteristic attribute of the 
right of the property is the jus abutendi ; were it restricted to the 
jus utendi or fruendi, it would be merely a right of usufruct or 
usage. This right of absolute disposal may be viewed under 
various aspects. 

In our chapters on " Consumption " we have discussed those 
modes which merely suppose a personal employment of wealth, 
such as reproductive or unproductive consumption or hoarding. 
Now we have to deal only with those modes of disposal which 
influence the distribution ■ of wealth inasmuch as they imply a 
transfer of property. 

Section i. A man may dispose of his article for a certain con- 
sideration by means of sa/e, letting, or lending, or by handing it 
over to hired workmen to turn to further account for him.^ 

This mode of employment is of grave import as regards the 
distribution of wealth, for by it " classes " are necessarily created 

^ The French phrase is the all-meaning " fair e-va loir y — Translator'' s Note. 



432 PRINCIPLES OF POLITICAL ECONOMY. 

in society. Thus there are debtors, tenants, hired laborers who 
have all, more or less, to work on behalf of others ; and as a 
counterpart to these there are owners of property, whether they 
live on their income or are employers of labor, who reap some of 
the fruits of other people's toil. We shall weigh these conse- 
quences when we treat of the various categories of sharers. 

In any case the above are attributes which are inseparable from 
the right of property. 

The right of property over a thing necessarily involves the right 
to sell or to exchange the article, for without that it would be 
useless. We know that, given the present social organization, 
which is based on division of labor, each one of us, generally 
speaking, only produces articles for the purpose of exchange. To 
do away with exchange, in this fashion, would simultaneously put 
a stop to all division of labor, and would cause society to revert 
to a state of savagery. Thus the owner's right of exchanging a 
thing has always been beyond the reach of controversy. 

Once ihat we have admitted the right to sell, i.e. a man's right 
to yield up his thing for a price in money, the necessary conse- 
quence is the right to yield it up on any condition ; for instance, 
for a specified term, and in consideration of a yearly sum payable 
during the period of time (this includes letting on hire, the sys- 
tem of granting leases, and loans for interest) . It is further ad- 
missible to hand over one's article to workmen who have to supply 
a certain amount of labor on it. 

Section 2. The article may be disposed of gratuitously by gift 
or by bequest. This manner of employment, too, seriously affects 
distribution ; by allowing persons who have acquired wealth by 
their labor to transfer it to others, who have not worked to obtain 
it, this system may plant a do-nothing by the side of each worker, 
and create whole unproductive classes, who will accumulate wealth 
without having done aught to deserve \t,fruges consimiere nati. 

That is true ; but we cannot dream of depriving the owner of a 
thing of the right of giving it away during his Hfetime or after- 
wards. If he is allowed to destroy it, why should he not give it 



DISTRIBUTION. 433 

away ? if he can consume it for his own gratification, perhaps in a 
senseless way, why should he not hand it over for others to con- 
sume ? The history of early societies teaches us that the gift or 
the present was one of the most ancient modes of disposing of 
wealth, and probably preceded exchange or sale. Now one of 
the principal advantages conferred by the right of property is the 
ability to communicate its benefits to others. 

Let our final and clenching argument be that which we urged 
in favor of the right to give ; to wit, the fear of irretrievably 
injuring productive activity by preventing owners from disposing 
of their property for the benefit of their children. For the honor 
of human nature, it must be said that there are very many men in 
the world who work and who save far less for themselves than for 
others. If we compel them to think only of themselves, they will 
work less and spend more. Think of the wealth that would then 
be wasted in unproductive consumption in consequence of the 
freer living that would ensue ! Think of the years that would 
be lost to productive labor through men retiring prematurely ! 
By depriving men of the right of disposing of the fruits of their 
own labors, we should break one of the most powerful springs of 
production. Things that we could no longer dispose of and that 
would be non- transferable would thereby lose a portion of their 
utility ', they would be less desired, and we should make less effort 
to produce them. 

Certainly we might try to draw fine distinctions between dona- 
tion and bequest, between the right to give during hfe and after 
death, by asserting that the rights of private property, and conse- 
quently the right of disposing of it, vanish with their original pro- 
ducer; but that would be a misapprehension of the rights of 
property. In the emphatic language of law, this right is real and 
not personal ; if it is to be based on labor, we must recognize that 
it ought to last as long as the result of the labor, that is to say, as 
long as the article produced. But if we refuse to grant the right 
to bequeath, on the ground that it only comes into effect after the 
death of the owner, we should likewise have to abolish alienation, 



434 PRINCIPLES OF POLITICAL ECONOMY. 

the consequences of which clearly survive the disposer, and any 
form of disposal of a definitive character, such as those which law 
denies to usufructuaries. 

Moreover, the distinction would be almost impossible to apply ; 
for it may always be evaded by various combinations well known 
to lawyers, e.g. donation with reservation of usufruct. 

We have no reason to wish that the wealthy should less often 
dispose of their goods gratuitously ; nay, we should rather hope 
them to confirm this practice and to make it a rule to leave a 
space open in their wills for philanthropic or intellectual undertak- 
ings. In that way they would follow in the wake of wealthy Ameri- 
cans, who are already adding to the common estate of society by 
such methods. 

Section 3. As the right of property over a thing naturally lasts 
as long as the thing, the duration of the right must vary in accord- 
ance with the length of existence of the particular article. Now 
one kind of wealth — and, solitary as it is, it comprises more than 
half the total of all the wealth in the world — lasts forever ; we 
refer to land. Another class of wealth, of no less importance, also 
possesses a perpetuity that might be called artificial, for it springs 
less from the nature of the articles than from certain agreements 
entered upon by men. This includes the capital represented by 
share -warrants, certificates of government stock, and so forth. 
Therefore, as the right exists as long as the object over which it 
holds, the right of property over these various classes of goods 
must share the perpetuity of these goods. 

By this highly important attribute of the right of property, the 
distribution of wealth is powerfully affected. As, in this instance, 
the right must survive the person of the original holder, it has to 
pass to some other person, i.e. to a successor ; hence inheritance 
is seen to be a necessary consequence of the perpetuity which is 
characteristic of the right of property. 

Most socialists regard as one of the gravest vices of the social 
order, and as one of the most iniquitous of the injustices that 
obtain in the distribution of wealth, the principle of inheritance 



DISTRIBUTION. 435 

which grants the children of the rich, even to the hundredth gen- 
eration, the privilege of being rich in their turn without having 
done aught to deserve it. 

We have already seen that Saint-Simon's school included the 
abolition of inheritance in its programme ; but, contrary to the 
usual opinion, Fourier and his school fully admitted the principle. 
The contemporary collectivist school partly allows inheritance as 
a consequence of the right of private property. This concession 
ceases to be astounding if we only remember that collectivism 
excludes from the purview of private property both land and capi- 
tal, i.e. the only wealth which is perpetual, and the inheritance of 
which might have serious consequences. Inheritance is of trifling 
importance when restricted to objects of consumption, as under 
the collectivist system. 

We shall see later on that this injurious effect of inheritance, the 
possible creation of an idle class, is counterbalanced by certain 
social advantages. Further, it would be childish to seek to pre- 
vent the inheritance of wealth, for we cannot dream of hindering 
the application of the principle of transmission by inheritance to 
many other privileges which are even more important than material 
fortune. We refer to health, talent, virtues, social esteem, and a 
mere surname which of itself alone is often worth a fortune. The 
law of heredity is assuredly the natural \2iW par excellence. 

The following might be the most sensible mode of settling the 
complicated question of inheritance and of determining who ought 
to receive the goods which survive their original owners. 

Firstly. Whenever an owner has assigned his property by will, 
his desires should be respected, whatever they may be. We know 
that freedom to give and to bequeath is a natural attribute of the 
right of property. Further, if we confine ourselves to our criterion 
of a fair distribution of wealth, e.g. the placing of wealth in the 
hands of those who can use it best, it seems that no one is better 
fitted than the owner to point out the suitable persons. 

Secondly. Whenever the owner has not conveyed his property 
to any one, the property should fall to the government as unclaimed 



436 PRINCIPLES OF POLITICAL ECONOMY. 

estates ; ^ for society, as represented by the government, seems to 
be the natural heir of all persons who have not formally disposed 
of their goods. In fact, each of us who succeeds in the world and 
becomes an owner, owes part of his respective share of prosperity 
to the collaboration of all and to that common fund of ideas, 
inventions, means of action, and modes of transport from which 
we benefit. It is just, therefore, that at our death and in default 
of any other person to whom we have assigned our rights, our 
property should return to swell the social patrimony from which 
it has partly proceeded. 

To use legal phraseology, freedom of disposal by will, on the 
one hand, and the abolition of succession ab intestato, on the other, 
should be the leading principles to guide the legislator in matters 
of inheritance, as general principles only, for, if strictly appUed, 
they would be very unjust. 

With reference to freedom of disposal, it must not be forgotten 
that every owner of property has certain obligations as regards 
his children, his parents, and his wife ; i.e. as regards those to 
whom he has given life, from whom he has received life, and with 
whom he shares life. Every system of law compels him, at least, 
to support them during life, and after death the obligation is 
heightened instead of being nullified. It is right, therefore, that 
freedom of disposal by will should exist only after a certain portion 
has been put aside for the above classes of persons ; but the 
"reservation" which the French Civil Code grants is an altogether 
excessive share. As Montesquieu says, " though the law of nature 
orders fathers to provide their children with food, it does not com- 
pel them to make them their heirs." 

It would be barbarous to apply hard and fast rules for the 
abolition of succession ab i?ifestafo, if there is reason to believe 
that the silence of the decease^ has been due to mere negligence 

1 This was advocated by Jeremy Bentham in his Supply without Burden 
or Escheat vice Taxation, 1795 (Vol. II of his Works). The late M. Godlin 
of Guise included this and much more under the claim for " I'heredite de 
i'etat," with which he identified himself. — J. B. 



DISTRIBUTION. 437 

or lack of foresight. Succession ab intestato for children, parents, 
and even for ,brothers and sisters, should in all cases be admitted 
as a reasonable interpretation of the testator's intentions ; for if 
he had meant to disinherit them, he would have said so. But, 
when we come to a cousin in the twelfth degree, or even to a 
nephew, it would be absurd to apply the same reasoning and 
interpret the silence of the deceased as giving a right to the 
claimants. 

It is almost needless to remark that the right of succession ab 
intestato can in no way stimulate productive activity, and that it is 
far more likely to encourage idleness by the " expectations " which 
it engenders. A heritage which comes from an uncle in America 
is a mode of acquisition which does not differ in the least from a 
drawing in a lottery, and exercises the same demoralizing influence 
both on the recipient and on those who envy him his good luck. 

The various schools think very differently as to our suggested 
methods. The socialists highly approve of abolition of succession 
ab intestato, but will scarcely listen to the mention of freedom of 
disposal by will. It is odious to them inasmuch as it is one of the 
sovereign attributes of the right of property ; and further, it is 
regarded with suspicion because there is a fear that the testator, 
in the disposal of his property, might be inspired less by consid- 
erations of social utility than by his own personal preferences, 
and might thus revive all the injustice of the old order of things. 

The Catholic school approves of freedom of disposal, for that 
points to a re-establishment of paternal authority and (though the 
avowal is not openly expressed) may lead to a return to primo- 
geniture and the reconstruction of a landed aristocracy. But 
this school is entirely opposed to the abolition of succession ab in- 
testato, for it wishes to keep estates in the family — a desire shared 
by all legislators of conservative tendencies. 

The Liberal economic school is enamoured of neither of these 
principles. Freedom of disposal by will, so it thinks, may lead to a 
return to the old order and to that past which it helped to destroy. 
In England and in France fathers do not avail themselves even of 



43S PRINCIPLES OF POLITICAL ECONOMY. 

the narrow liberty they might find within the hmits of the shares 
allowable by law. 

Still less does the Liberal school sanction the abolition of succes- 
sion ab mtestato ; for it is horrified by the prospect of the State 
becoming the imiversal heir, and holds that, as regards social 
utility and the judicious employment of wealth, property had 
better fall into the first comer's hands rather than into the abyss 
of State budgets. 

The drawers of the Civil Code have obeyed opposing tendencies 
in turn. The levelling notions of the Revolution caused them to 
adopt the rule of equal division ; but, in accordance with the 
co-proprietorship of the family as a whole which obtained under 
the Old Regime, they extended inheritance ab intestato as far 
as cousins of the twelfth degree, and excluded wives. 

However, for some time greater definiteness has been observ- 
able in the double aim we have expounded. A number of econo- 
mists and of lawyers are making two simultaneous demands : firstly, 
a certain extension of freedom of disposal by raising the portion 
that can be bequeathed by will at least to a half of the whole 
estate ; secondly, a certain limitation of the right of succession ab 
intestato which would be confined to the fourth degree, or at 
the outside to the sixth degree. 

III. Over What Things should the Right of Property- 
extend ? 

In modern society private property extends over everything 
that can be seized or occupied by man. Almost the only objects 
that have still escaped its sway are those which from their very 
nature are not susceptible of such appropriation ; viz. the air, the 
sea, and great rivers. But facts are not necessarily in agreement 
with equity, and the mere fact of an object being appropriated 
does not prove that it can be rightfully appropriated. On this 
subject it seems wise to draw certain distinctions ; two have been 
proposed. Let us examine them in turn. 



DISTRIBUTION. 439 

Section i. The Distinction between Capital and Objects of Con- 
sumption. 

The collectivist school concedes the right of private property- 
over every article that is destined for consumption, but refuses 
it over all objects to be used in production; that is to say (in the 
words of the programmes issued by that school), "the soil, the 
subsoil, buildings, machinery, and capital of every kind." 

This distinction has already been mentioned and criticised by 
us. It is hopeless to attempt to find any rational basis on which 
it might be built. Starting from the principle that private property 
must be grounded on labor, it cannot be denied that capital, 
whatever form it may take, consists only of the products of labor, 
which differ from other wealth in nothing but the employment 
to which they are put. 

That capital is originally the product of labor is not denied 
(for it cannot be denied) by Karl Marx himself in his Capital. 
He does not contest the legitimacy of the worker's ownership of 
the instrument of his labor. But the theory of his famous book 
is that capital, as it exists nowadays, is no longer related to 
the original accumulation which was the fruit of labor and of 
saving ; that the modern accumulation of capital has been built 
up by the expropriation of the original producers, and by the 
plundering of the workers effected by means of trade, of usury, 
and especially of the wages-system ; and that " capital has entered 
the world sweating blood and mud from every pore." In other 
words, the theory advocated by Karl Marx and the collectivists 
comes to this : certainly capital is the product of man's labor, but 
it is the product of the labor of the workers, and not of the labor of 
the capitalists. Therefore it must have been stolen by the latter 
from the former. 

We shall have to examine the legitimacy of this thesis when we 
deal with the conflict between capital and labor with regard to 
profits. At present we need not discuss it. Even if we were to 
grant that all capitalists are robbers, the argument would not touch 



440 PRINCIPLES OF POLITICAL ECONOMY. 

US ; for in this place we have not to determine whether capitaHsts 
are the rightful owners of the capital they possess ; our business is 
to discover whether capital can be the object of any lawful right 
of property whatsoever. That is quite another matter. 

Thus the argument that the collectivists adduce in favor of their 
distinction is rather a question of fact than a question of principle. 
They assert that, as it is impossible to dispense with capital in pro- 
duction/ possessors of capital will necessarily be placed in a pre- 
dominant position, which will enable them to impose their own 
terms on those of their fellow-men who are without capital ; there- 
fore they can compel them to work for their profit, whether as 
slaves, as serfs, or as wage-receivers. To this our answer must be 
that the possession of wealth of any kind — whether it be as capi- 
tal or as articles of consumption, it matters not — will always give 
a privileged position to the man who has been skilful enough to 
obtain that wealth, and will enable him in a certain measure to dic- 
tate his own conditions to the rest of mankind. The only means 
of obviating such a result would be to prohibit all large fortunes 
and to enforce a universal mediocrity of fortune ; in other words, 
to return to communism. In whatever direction collectivism seeks 
to ride, it always ends by being thrown into this ditch. 

It must further be observed that as soon as ever private prop- 
erty in capital is abolished, there will no longer be any motive for 
individual saving. But at the present day it is precisely this indi- 
vidual saving that, from its countless springs, incessantly feeds and 
renews the flood of capital within a country. If once these springs 
cease to flow, how can we insure the maintenance, the renewal, 
and the gradual increase of the capital of a country ? 

Oh ! it is rejoined, the State will yearly deduct a reserve sum 
from the income of society, which would then be blended with its 
own. He would indeed be reckless who would allow the economic 
future of a country to depend upon the savings made by a gov- 
ernment ! 

^ As it has been happily put by a German writer, their cry is not " away 
with that capital ! " but " here with that capital ! " — J. B. 



DISTRIBUTION. 44I 

Still, in certain measure, we may be able to make some conces- 
sion to the demands of the collectivists. The instruments of labor 
which are now used in large industry, under the name of capital 
and in the shape of factories, machinery, and mines^ are too huge 
to be worked by a single person, as was the tool of the artisan of 
former days ; nay ! they demand the co-operation of several hun- 
dreds, and sometimes of several thousands, of men. Now, since 
production has to a certain extent become collective, it would be 
rational for ownership to be collective in the same degree. It 
would be advisable that the factory, the machines, the mine, 
instead of being the property of a single individual, the employer 
or the company, should become the collective property of all the 
individuals who co-operate in the undertaking. 

This is the aim that co-operative societies have in view, and, 
though difficult to realize, it is a perfectly legitimate end. But if 
ever this co-operative system is actually established, it will cep 
tainly not involve the abolition of all property in capital ; it will 
only transfer this property from the hands of capitalists into the 
hands of workmen. 

Section 2. The Distinction between Land and Products. 

Another distinction has been proposed which seems to be far 
more reasonable : on one side it places all products — all movable 
goods, if that legal term be preferred — which, by the mere fact 
of being products, are necessarily the result of some labor, whether 
it be great or small. The phrase " movable goods " unfortunately 
excludes houses and other buildings, which are obviously the prod-=- 
ucts of labor and should therefore be included in this first class. 

On the other side is set the actual substratum of production, i.e, 
land and mines, which, from the single circumstance that it exists 
prior to any act of production, can only be the work of nature and 
cannot proceed from the labor of man. If we wish to adhere 
faithfully to our principle that bases private property upon labor, 
we must admit the lawfulness of the right of property over this 
first class of wealth, because such objects are artificial, but must 



442 PRINCIPLES OF POLITICAL ECONOMY. 

declare it to be unlawful as regards the second category, because 
the components of that class are natural. 

The simplicity and the logic of this distinction strongly impress 
the mind. It is of very ancient date, for we shall presently see that 
it can be traced back to the first beginnings of property ; it is 
highly capable of application to the present, for in our time it has 
met with the approval, not only of socialists, but also of a number 
of contemporary economists and philosophers. 

It was the basis of the socialistic system of Colins, who is now 
dead, but whose school still exists in Belgium. Henry George in 
America and A. R. Wallace in England have also used it as the 
groundwork of their systems. Moreover, it has been adopted, 
though with some reservation, by Messrs. Herbert Spencer, De 
Laveleye, Walras, and Secretan. None of these is a socialist in the 
popular sense of the term, and some of them are the leaders of 
the individualist or liberal school. 

But the optimistic school keenly attacks this distinction, which is 
capable of powerfully shaking the institution of landed property. 
This school asserts that land is a product of the labor of the agri- 
culturist in the same way as the clay vessel, which is fashioned by 
the hand of the potter, is a product of his labor. No doubt man 
has not created land, but neither has he created potter's clay. 
Labor never creates ; its task is restricted to modifying the mate- 
rials supplied to it by nature. Now this modifying action of labor 
is surely no smaller when it is exercised on land itself, than it is 
when exerted on the materials drawn from the earth's bosom. 
The optimistic school refers us to those patches of land which the 
peasants of the Valais or of the Pyrenees have literally constructed 
on the slopes of their mountains, by carrying all the earth for that 
purpose in baskets upon their backs. An ancient author tells us 
how a peasant was accused of sorcery because of the abundant 
crops that he obtained from his plot of land, whilst the neighbor- 
ing tracts were nothing but barren heaths. When he was cited to 
appear before the Roman praetor, his only defence was to show 
his two arms, and cry, " Veneficia mea haec suntr^ "These are 



DISTRIBUTION. 443 

my only spells ! " To justify itself against the attacks of which it 
is the object, la,nded property has only to repeat the same proud 
answer. Thus the optimistic school. 

Though this line of argument certainly contains some truth, still 
that does not appear to be enough to overthrow the distinction 
between land itself and the wealth that it yields. No doubt man- 
kind and land have ever been bound together by the tie of daily 
labor, often labor of the severest kind, to express which the term 
was invented of laboring v/ith the sweat of one's brow {lador, toil). 
But though land is the instrument, it is not the product, of labor. 
It exists before any labor exerted by man, and through it alone 
can that labor become productive. Besides, it is not lifeless mat- 
ter like clay in the hands of the potter : it lives, it produces, nay, 
it labors ; from it man receives the great treasure of natural forces 
— the sun, the rain, the dew, and, in particular, the situation, 
which we have already seen to be the condition indispensable for 
all production. Why, then, should not land possess a value and a 
utility which are independent of all human labor ? 

We grant that by his labor man daily improves and modifies this 
wonderful instrument of production with which nature has supplied 
him, for the purpose of better adapting it to his own ends, and 
thus he clearly confers on it a new utility and a new value. But 
the primitive value of the ground can still be easily observed 
beneath the accumulated strata of human labor. 

This is discerned by the naked eye in the forest which has not 
yet been cleared, and the prairie which is still uncultivated. Yet 
these can be sold or let at a, high price and at a high rental. It is 
visible in the tracts of sandy shore in the neighborhood of Aigues- 
Mortes at the mouth of the Rhone, which had only been ploughed 
by the sea-breeze ; yet the fortunes of their lucky possessors were 
made when it was discovered by chance that on such spots vines 
could be planted which escaped the phylloxera. Again, it can 
be perceived in building-sites in large towns which have never 
felt the plough, but the value of which is far higher than that 
of any cultivated land. 



444 PRINCIPLES OF POLITICAL ECONOMY. 

When the school of Bastiat attempts to show that the value of 
land proceeds solely from labor, it lays stress on the circumstance 
that where land is virgin soil, as in portions of America, it is value- 
less. The statement is correct, but the argument derived from it 
does not prove anything. The worthlessness of lands on the banks 
of the Amazon does not arise from their being virgin soil, but from 
their being situated in a desert ; and, where no men exist to utilize 
things, the very notion of wealth vanishes. 

It is obvious that land was valueless until the first man appeared 
upon its surface, and to that condition it will return when the last 
of our race has disappeared. Virginity of the soil has nothing to 
do with the matter. Here is a proof of it : if these tracts on the 
Amazon could by the stroke of some magic wand be transported 
to the banks of the Seine, their present condition being unchanged 
and their virginity left intact, they would probably be of as high a 
value as the oldest estates in France, in spite of the marks that 
the latter bear of the labor of a hundred generations. 

If this hypothesis seems to be too extravagant, let us take any 
chance plot of land in France and suppose it to be abandoned for 
a hundred years, till all traces of man's labor have been effaced 
and nature has given it a new virginity. Shall we be told that then 
that land will have lost all value, that neither a farmer nor a pur- 
chaser will be forthcoming for it ? Surely not ; on the contrary, 
we may safely wager that, though it has been left in such a state, 
that land, a hundred years hence, will be far more valuable than it 
is to-day. 

This natural value of the ground, again, is plainly visible in the 
case of cultivated areas, and is shown by the unequal fertility of 
land. Thus two plots may have been the object of equal labor 
and of equal expenditure, but one of them may be worth a fortune 
while the other may not be worth a farthing. It also appears, as 
will be seen later on, in the unearned increment which land 
receives independently of human labor and from which the owner 
derives an income which constantly increases. 

We therefore hold that the distinction is justified in principle- 



DISTRIBUTION. 445 

But do we mean by that, that landed property is to be condemned 
without our hearing any further evidence ? Before we pronounce 
so hasty a judgment, let us see how landed property took its rise. 

IV. The Historical Evolution of Landed Property. 

In modern societies, at least in the old European countries, 
private property extends over almost the entire surface of the 
land. Not only has this appropriation been sanctioned by all sys- 
tems of legislation, but, moreover, current opinion has come to 
regard it as the type of property. When we speak of " property " 
without using any quahfying term, we are always understood to 
mean landed property. 

But the numerous researches which have been made, especially 
of late years, justify us in holding that it has now been proved that 
landed property is an institution of relatively recent date. We 
learn that it was unknown in the earliest phases of civilization, and 
that its formation was a matter of great difficulty. For long years 
men were cognizant of no other private property than that which 
related to movable goods and to houses, for those were the only 
articles which could be regarded as the product of individual 
labor. 

As Herbert Spencer says {Pfincipks of Sociology, Vol. II, page 
635, 1882 edition) : " Records of the civilized show that with them 
in the far past, as at present with the uncivilized, private posses- 
sion, beginning with movables, extends itself to immovables only 
under certain conditions. We have evidence of this in the fact 
mentioned by Meyer, that ' the Hebrew language has no expression 
for landed property ' ; and again in the fact alleged by Mommsen 
of the Romans, that ' the idea of property was primarily associated, 
not with immovable estate, but with " estate in slaves and cattle " 
{familia peamiague)y^ Compare the etymology of the word 
" mancipatio," which evidently refers to movable goods. 

Six successive stages can be observed in the evolution of landed 
property, and these we propose to briefly indicate ; but we must 



44^ PRINCIPLES OF POLITICAL ECONOMY. 

not be imderstood to mean that at all times and in all places 
property has assumed each of these shapes in succession. 

Firstly. It is obvious that landed property cannot arise in a 
society which lives by the produce of the chase, or among pas- 
toral races who lead a nomadic existence. Agriculture is a prior 
condition. Even in the earliest phases of agricultural life landed 
property is not yet instituted. In those days land is over-plenti- 
ful, and no one experiences the need of marking off his share ; 
moreover, agricultural methods are then in the embryonic stage, 
and the cultivator leaves his field as soon as it is exhausted and 
takes another one. The land is cultivated in common, or at least 
promiscuously ; it belongs to the society as a whole, or rather to 
the tiibe. The fruits of the land are all that the producer obtains. 

Secondly. Gradually the population becomes more sedentary 
and settles more firmly on the land. It also grows denser and 
feels the necessity of resorting to a more productive method of 
cultivation. Thus the first stage is supplanted by a second phase ; 
namely, temporary possession together with periodical divisions. 

Arva per an?ios mutant, " they change their land yearly," is 
the famous phrase used by Tacitus when speaking of the ancient 
Germans.^ But of late years the meaning of the sentence has 
been contested, and a new and somewhat paradoxical translation 
has been proposed ; viz. " they change their rotation of crops 
yearly." This system of the tribe holding the land as its collec- 
tive property is still to be met with in the arch of the indigenous 
■ ribes of Algeria. 

Though the land is still regarded as belonging to the society, 
it is equally divided among the heads of famihes, not as yet 
definitively, but only for a certain time. First of all for a year, for 
in that is comprised the ordinary cycle of agricultural operations. 
Then, as methods of husbandry improve and cultivators require a 
longer space of time for the accomplishment and fruition of their 

1 Tacitus, Germania, ch. 26. The interpretation of the passage is fully 
discussed in Dr. W. Cunningham's Growth of English hidushy and Co?nmerce, 
2d ed., 1890. — J. B. 



DISTRIBUTION. 44/ 

labors, the division is gradually allowed to hold good for more 
and more lengthy periods. This plan of periodical division is 
still extant in Russia, and is well known as the mir. This mir, the 
community composed of the dwellers in each village, is the pos- 
sessor of the land, and distributes it amongst its members by 
divisions which are usually biennial, but the periodicity varies 
iTom one parish to another. The territory of the parish is of three 
kinds : the land which has been built over together with the 
gardens which constitute the hereditary property of the parish ; 
this is not subjected to division. The two other classes, the 
arable land and the meadow-land, are periodically divided into 
portions which are as equal as the number of inhabitants will 
allow. The assembly formed by the heads of famihes, the ;;«>, 
has sovereign power over the distribution of the respective shares 
and the fit cropping. Further details can be found in M. Anatole 
Leroy-Beaulieu's La Russie and M. de Laveleye's La Fropjiete. 
It has been maintained that these Russian village communities 
are tending to abandon this system in favor of the institution of 
private property. But the assertion has been by no means proved. 
Thirdly. At last a time comes when these periodical divisions 
fall into disuse, for skilful cultivators do not readily agree to an 
arrangement which periodically deprives them of the fruits of 
their labor in the interests of the whole community. Thus we 
arrive at proprietorship of the family as a whole, each family 
becoming henceforward the proprietor of its own portion. But 
private property is not yet established, for the right of disposal is 
still non-existent. The head of the family can neither sell the 
land, nor give it away, nor dispose of it after his death, for it is 
held to be a collective estate, and not a private property. This 
system can even now be observed in the family communities of 
Eastern Europe, especially among the Zadrugas of Bulgaria and 
Croatia, which consist of between fifty and sixty persons. But 
they are now somewhat rapidly disappearing in consequence of 
the spirit of independence manifested by the younger members 
of the family. (See M. de Laveleye's article in the Revue d'Eco- 



44^ PRINCIPLES OF POLITICAL ECONOMY. 

nomie politique iox August, 1888, entitled " Les communaut^s de 
famille et de village.") 

Fourthly. The history of the evolution of landed property 
would be gravely incomplete, were we not to take into account a 
circumstance which, though it seems of the nature of an accident, 
has unfortunately occurred in the evolution of all human societies 
I refer to conquest. There is probably not a single territory that 
has not, at some time or other, been taken away by force from the 
people that occupied it and been appropriated by the conquering 
race. As a proof of the influence conquest has had upon the 
evolution of landed property, Herbert Spencer makes the following 
interesting remark. The regions in which the ancient forms of 
collective property have been the best preserved, are precisely 
those poor and mountainous localities whose very situation has 
insured them against conquest. 

The conquerors, for their part, in virtue of their position as vic- 
tors and masters, have not troubled to cultivate the land, have 
merely assumed the legal ownership, the " superior lordship," as 
it used to be called, and have left the subjected people in posses- 
sion of the soil by what is called teiiure. This tenure was more or 
less akin to actual ownership, but was always limited by the con- 
ditions of the concession made to the cultivator, by the servitudes 
which weighed heavily upon him, by the dues he was bound to 
pay to his overlord, and by the impossibility of alienating the 
land without the authority of his superior. For several centuries 
this " feudal system " was the foundation of the social and political 
constitution of Europe, and is still to be met with in several coun- 
tries, notably in England. In that country much property, theo- 
retically at least, is held in the form of a tenure as copyhold and 
is still shackled by a number of restrictions (entails, settlements, 
etc.), which it experiences great difficulty in shaking off. As 
Blackstone says, thus was established in English law the cardinal 
maxim with regard to possession of land : the king is the only 
master and the original owner of all the land in the kingdom. 

Fifthly. The development of individualism and of civil equality 



DISTRIBUTION. 449 

and the abolition of the feudal system, particularly in those coun- 
tries which have felt the influence of the French Revolution, have 
led to a fifth stage, which has been realized in our times ; namely, 
the definitive institution oi freehold landed property, together with 
all the attributes involved in the rights of property. 

But this landed property, for example, as it is set forth in the 
Code Napoleon, is not yet altogether identical with personal prop- 
erty. It possesses numerous diff"erentiating characteristics which 
are well known to lawyers, and are especially marked by the various 
degrees of difficulty to which the rights of alienation and acquisi- 
tion are subjected. Sufficient instances are the inaHenability of 
the immovable estate of women married under the dowry system, 
the formaUties required for the transfer of real estate, and the 
enormous succession duties which are levied for change of owners. 

Sixthly. Thus only one step further was required for the com- 
plete assimilation of landed property and personal property, and 
for the reaching of the last term in this evolution. This was the 
mobilization of landed property, by which each individual might be 
enabled not only to possess land, but also to dispose of it as easily 
as any article of personal property. This final step was taken in a 
new country, Australia, by the institution of the celebrated Torrens 
System. By this the owner of real estate is able, as it were, to 
docket his land in the shape of a sheet of paper, and to transfer it 
from one person to another with the same ease as if it were a bank 
note, or at least a bill of exchange. 

In the author's Etude sur VAct Torrens (1886), full details are 
given as to the Torrens Act,, which is named after the statesman 
who caused its adoption in New South Wales about forty years 
ago. It has two essential features. The first is a register similar 
to the French civil register; in this each real possession has 
its own page, which is devoted to its plan and its specification ; 
on the page, too, is related (as far as possible) the history of the 
realty from the date of its entrance into the domain of pri- 
vate property. The second is a title-deed, which is a fac-simile, 
sometimes even a photographic reproduction, of the leaf in the 



450 PRINCIPLES OF POLITICAL ECONOMY. 

register. When this has been handed over to the owner, it abso- 
lutely stands for the realty itself, and can in its turn be yielded 
to others, given as security, and so forth. 

As Torrens himself said, the object of this system was to rid 
landed property of all the barriers that prevented free access to it, 
" like the portculHs, drawbridge, and moats which used to defend 
the approach to the castles of our ancestors." The system was 
adopted in turn in all the Austrahan colonies and in some other 
Enghsh colonies, has lately been tried in Tunis, and is to be 
attempted in Brazil. Various legislative endeavors to introduce 
it into England have hitherto proved unsuccessful.^ 

Our review of the history of landed property might seem to justify 
us in drawing this final conclusion ; the reign of collective property 
has passed away forever, for we see the institution of property grow- 
ing more and more distant from that early stage and constantly mov- 
ing in a diametrically opposite direction. However, the future may 
belie that conclusion. It is not impossible that the evolution of 
landed property may have in store for us the same surprise as we 
have experienced from the study of the evolution of other institu- 
tions, e.g. a money and a mercantile class ; there may be some 
right-about-face movement which may bring our institution back 
to a spot not very distant from its starting-point. We may note 
that precisely the same predictions as ours have been set forth 
by Herbert Spencer, who has traced the history of landed property 
in a masterly manner, and who is one of the leaders, or rather Ir- 
reconcilables, of the individuahst school ; for on pages 643, 644, of 
the second volume of his Principles of Sociology, we read : " So it 
seems possible that the primitive ownership of land by the com- 
munity, which, with the development of coercive institutions, 
lapsed in large measure or wholly into private ownership, will be 
revived as industrialism further develops." 

1 Further references to the Torrens Act may be found in the Bulletin de la 
Societe de Legislation Comparee, and in the Revue d''Econoviie politique, June, 
1890, "Le Systeme Torrens en Angleterre," by Charles Fortescue Brickdale. 
■ — Author'' s Note. 



DISTRIBUTION. 45 1 

V. The Legitimacy of Landed Property. 

We have now traced the course of landed property ; we have 
seen it gradually unfolding itself from the primitive community 
and taking the shape of free private property in ever-increasing 
likeness to personal property ; and we have observed how its suc- 
cessive transformations have followed in the wake of the progress 
of agriculture and the development of civilization. It will now be 
easy to determine the economic causes which have, so to speak, 
necessitated this establishment of landed property. 

One active force is the increase of population, which has com- 
pelled mankind to practise more intensive cultivation in order to 
obtain from the earth a larger and larger supply of articles of sub- 
sistence.^ In Canada it has been observed that the native races 
who live by the chase require the enormous area of fifteen square 
miles per head so that each man may continue to exist. Below 
this limit they are decimated by famine. But agriculture, as it is 
practised in Western Europe, can support from four to five thou- 
sand times more. 

Secondly, to stimulate labor it is necessary to guarantee the cul- 
tivator a right not only over the produce of his land, but also over 
the land itself, as the instrument of his labor. This right is tem- 
porary at first, but it is continued longer and longer as the prog- 
ress of agriculture requires labor of longer duration, and finally it 
becomes perpetual. 

The right to the fruits of the earth carries with it the right to 
the earth itself, at least for a certain period. The man who has 
sown the seed must be given time to reap the harvest. The planter 
of vines must wait six or seven years for his first vintage ; half a 
century must elapse before the sower of the acorn can cut the oak. 
Moreover, even yearly cropping, if at all advanced in method, 
requires certain labors (such as manuring, improvements of the 
soil, drainage, and irrigation), which can only be recouped by the 

1 This aspect of the increase of population was first fully treated by Mal- 
thus. — J. B. 



452 PRINCIPLES OF POLITICAL ECONOMY. 

successive crops of ten, twenty, or even fifty years. The man who 
has performed such labors must be allowed the possibility of repay- 
ing himself; otherwise it is certain that he will relinquish them. 

Still we may ask if it was really necessary to grant perpetuity to 
landed property. It was not indispensable for the successful culti- 
vation of the soil ; for surely man, the creature of a day, does not 
require all eternity for the execution of the largest labors. This is 
shown by the fact that such enormous undertakings as the cutting 
of the railways and the canals at Suez and at Panama rest only on 
concessions for ninety-nine years. 

It is true that the logic of the right of property should lead to 
this consequence, for the rights of property last as long as the 
object possessed, and in this case the object is of perpetual dura- 
tion. Of all wealth land alone holds this privilege ; time, the 
destroyer of all things, tempus edax reruDi, lays his hand on the 
earth only to give her a new youth with each returning spring. As 
we shall see shortly, the extension of this perpetuity from the 
object to the right itself involves some troublesome consequences. 

Besides the economical it is obvious that other causes, some 
political, some moral, some even religious in origin, have presided 
over the genesis of landed property, and may even now, in a 
certain degree, be called to testify in its favor ; but in this place 
we have only to deal with economical causes. Have those two 
causes, which led to the creation in the past of private property 
in land, now lost their power of defending it against the attacks 
of its adversaries ? We think not. 

For, given on the one hand the more or less rapid but continu- 
ous increase in population, and on the other hand the insufficiency 
of the production of wealth, which we have so often observed, it 
is as necessary now as it was in early days to choose the mode of 
cultivating the land which shall allow of the nourishment of the 
largest possible number of men upon any given area. In our 
opinion private property best satisfies that need. 

It is useless for the collectivists to tell us that the collective 
proprietorship of land would now give far better results than those 



DISTRIBUTION. 453 

obtained by private property, in consequence of that system alone 
enabling us to, employ the methods of large production and to 
reap all their advantages. We have already seen that we must 
not expect from large production in agriculture the same advan- 
tages as it gives in manufacturing industry. It effects a reduction 
in general expenses, but it also produces a smaller quantity of 
articles required for our subsistence : ' now what we especially 
desire to obtain from the earth is the greatest possible amount of 
gross produce. 

A further question is the organization of this cultivation of the 
land under the system of collective ownership. On this point 
the collectivists are far from being of one mind. If this task is 
to fall to the lot of the State or of the various communes or 
parishes, we must confess that the results heretofore obtained in 
the few cases of which we are able to judge have scarcely been 
encouraging. We refer to State forestry and State railways, and to 
the administration of public land. The value of the state forests 
in France is estimated to be ;^5 0,5 00,000, but the net returns 
are scarcely ;^48o,ooo, or rather less than one per cent. Though 
the cost of the French State railways was ^32,000,000, the net 
returns have been rather less than ^160,000, or slightly under 
one-half per cent. But to be candid, we must admit that in some 
countries, in Germany in particular, State property has yielded a 
much higher income. 

If we were to abide, then, by strict logic, land ought to belong 
to society ; but, as society as a whole cannot turn it to the best 
use, it concedes it to individual persons, and commissions them 
to cultivate it for the further benefit of all. Thus we regard 
landed property as based less upon natural rights than on civil 
law, — not on a principle of abstract justice, but on public utility. 
This distinction between landed property and personal property 
is excellently shown in the new Servian Code in the following 
clauses : " The right of property over products and movables 
acquired by human exertion is based on Nature herself and is 
established by natural laws"; "The right of property over realty 



454 PRINCIPLES OF POLITICAL ECONOMY. 

and soil, whether cultivated or uncultivated, is confirmed by the 
constitution of the country and by civil laws." 

Still we may ask whether landed proprietorship has not grown to 
an excessive and mischievous extent in thus absorbing almost the 
whole of the land of a country, and whether it would not have 
been more rational to limit it according to the spread of the 
cultivation of the earth, since that is the only title which we 
grant it ? 

Our views as to the limitation of landed property to land under 
cultivation happen to coincide, with the Mussulman law. In this 
respect that system is more rational than the legislation which is 
derived from the Roman Law. It restricts private property to such 
land as has been the object of effective labor, and this it terms 
living land in contradistinction to uncultivated land or dead land 
which should continue to be collective property. "When any 
man has put life into dead land, says the prophet, it shall belong 
to none other, and he shall have exclusive right over it." The 
following are the labors which are thus to transfer land to private 
ownership : " To cause water to flow as a spring either for drinking 
or for watering the fields ; to divert water from submerged tracts ; 
to build upon uncultivated ground ; to make a plantation thereon ; 
to break it up by tillage ; to clear away the undergrowth which 
renders it unfit for cultivation ; to level the ground and remove 
stones therefrom." By the application of these principles in Algeria 
and Java, collective property in those countries is even now of 
great importance. In France there are 50,000,000 acres of land 
of this description (two-fifths of the whole area of France), but 
only 15,000,000 acres of this land still belong to the State or the 
various parishes. All the rest has been swallowed up by private 
proprietors. 

There are grave disadvantages, which have been more than 
once pointed out, in the absorption by private proprietors of such 
collective property as public lands, woods, and pasture land. No 
doubt, as this early shape of collective property tends to disappear, 
our present societies witness the growth and development of an 



DISTRIBUTION. 455 

even larger form of collective property ; viz. railways belonging to 
the State, and, gas, water, and tramway enterprises which are carried 
on by municipalities. But the new does not compensate for the 
loss of the old form. 

VI. The Law of Ground Rent. 

Landed property seems to consist wholly of advantages, and to 
be altogether free from disadvantages, when we observe it at its 
commencement and in its early stages, as may now be witnessed 
on the pampas of the Argentine Republic or in Australia. Hence 
it is that its institution is so easy. Since it only refers to lands 
that have already been cleared, and extends pari passu with the 
spread of cultivation, it appears to be sanctified by labor. A* 
this stage it occupies but a small portion of the soil, and land is 
still over-plentiful ; hence no monopoly is associated with its exist- 
ence, and the law of competition holds good as with all other 
undertakings. 

But, when the society develops, and population becomes denser, 
a change comes over the character of landed property. It gradu- 
ally assumes the appearance of a monopoly which continues to 
increase without limit, giving great gains to the owners of land, 
but doing great injury to society as a whole. 

This evolution was first expounded by Ricardo,^ in that profound 
theory which gave him fame, and has for half a century furnished 
a staple for the discussions of all economists. 

Originally, says Ricardo, as men were only obliged to put a 
small quantity of land under cultivation, they chose the best plots. 
Still, in spite of the fertility of this land, the holders do not receive 
from their cultivation a higher return than they could obtain from 
any other employment of their labor and capital. For, as there is 
still other land, the law of competition comes into effect, and 
brings down to the cost price the value of the produce even of 
this most fertile land. 

1 Anderson and Malthus preceded him in teaching the received theory of 
Rent. Ricardo himself acknowledges his debt to the latter, •— J. B. 



45^ PRINCIPLES OF POLITICAL ECONOMY. 

But a time comes when increase of population necessitates an 
increase of production, and as land of the first class has been 
appropriated in its entirety, less fertile land has to be put under 
cultivation; i.e. land on which the cost of production is higher. 
Let us suppose that land of the first class yields 35 bushels of 
wheat per acre, at an outlay of ^i 2, or a little more than 6 shil- 
Ungs a bushel; then land of the second class will only produce 25 
bushels for the same expenditure, and the cost of production per 
bushel will be more than 9 shiUings. Now it is clear that the 
owners of this land will not be able to sell their corn below this 
price, for in that case they would lose, and would refuse to pro- 
duce any more. But on our very supposition people cannot do 
without this land. It is no less evident that owners of land which 
was occupied first of all will not be so obliging as to sell their 
corn at a lower price than their neighbors. They too, then, will 
charge 9 shillings a bushel ; but as their corn cost them only 
a little over 6 shillings, as heretofore, they will therefore realize a 
profit of nearly 3 shillings a bushel, or ^5 5^-. an acre. It is this 
profit which is called 7'ent, both in Ricardo's theory, and in the 
vocabulary of political economists in which it has gained a place. 
By this is meant a return which is peculiar to landed property, 
and is due to natural or social causes which are independent of 
the labor or the expenditure of the owner. (For a clear under- 
standing of the above theory, the reader should turn again to our 
chapter on the ''Effects produced on Value by Competition.") 
Our account of the theory clearly shows that // is not the rent 
that determines the rise i?i pfHce, Imt, on the contrary, it is the rise 
in price that determines the rent. 

At a later stage, as population continues to increase, and re- 
quires a further augmentation of the means of subsistence, men 
are obliged to cultivate land of even inferior quality, that will yield 
(say) only 20 bushels an acre. This means a cost price of 12 
shillings a bushel, and, for the reasons shown above, will raise in 
the same proportions the price of all the bushels in the market. 
Henceforward the owners of land occupied in the first instance 



DISTRIBUTION. 45/ 

will note a rise in their rents to ^9 an acre, and proprietors of 
land of the second class will now profit by a rent of ^7 an acre. 
This *' progress of cultivation," as Ricardo calls it, may go on 
indefinitely, its universal effect being to raise the price of food, to 
the detriment of consumers, and to increase rent, to the benefit 
of the landlords, whose incomes are swollen without any exertion 
on their part, and whose prosperity is derived from the impover- 
ishment of the community. 

It has been objected. Are men always compelled to increase 
production by putting new lands under cultivation ? Cannot the 
required increase of production be effected on the good land? 
Certainly it can ; but in virtue of the law of disproportionate 
returns, every increase of returns above a certain limit will require 
a more than proportionate augmentation of expenditure, and will 
consequently involve a rise in the expenses of production. Thus 
if land which yielded 35 bushels an acre for ^12 is now required 
to bear 70 bushels, the additional quantity may be obtainable, but 
it will probably be necessary to spend ^^^ to ^40, and the price 
of each bushel will therefore rise to ^i or more. Thus the final 
result will be the same. Our chapter on the " Law of Decreasing 
Returns " should be read along with this account of Ricardo's 
theory. 

The theory is now somewhat out Of favor, for it is held to be 
too pessimistic both by economists of the optimistic school and 
by socialists. At the present day so much confidence is felt in 
progress that men feel it difficult to believe that agricultural pro- 
duction is destined to go from good to bad, and from bad to 
worse. Although we ourselves have admitted the law of dispro- 
portionate returns which may at some future date justify Ricardo's 
sinister predictions, we have expressed the opinion that that day 
was still far distant and might be almost indefinitely postponed. 

A theory which was exactly the opposite to Ricardo's, and 
which won some favor in its day, was propounded by Carey, the 
American author. His attempt was to show that the progress of 
cultivation was carried out in precisely the reverse order. In 



458 PRINCIPLES OF POLITICAL ECONOMY. 

his opinion the most fertile lands are the most difficult to clear in 
consequence of their very fecundity, which takes the shape of 
exuberant vegetation and huge forests and marshes with the con- 
comitant miasma and fever. To put these under cultivation, then, 
agriculture will have to be equipped with more powerful weapons 
and methods. This theory is true for a budding society : when 
Carey propounded it, it still held good for the United States ; 
but it is no longer applicable to the United States of to-day, and 
centuries ago our European countries passed beyond its scope. 
No one but a man who had lost his senses could now assert that 
in France or in England the most fertile land was that which still 
had to be put under cultivation. 

Although we may not entirely accept Ricardo's law and a his- 
torical " progress of cultivation," it is nevertheless incontestable 
that the value of land is destined to increase without limit in con- 
sequence of causes which have nothing to do with the existence 
of any landlord whatever. For land has three characteristics 
which no other wealth possesses in the same degree : firstly, it 
answers to the essential and permanent wants of the human race ; 
secondly, it is limited in quantity ; thirdly, it lasts forever. From 
such facts we can easily perceive that its value must persistently 
tend to rise in proportion to social development. The increase 
in population is the principal cause ; for naturally the more men 
there are, the greater are the supplies of food that they require 
from the land, and the wider the space they need for their abodes. 
From the consideration of this has been drawn the somewhat too 
sweeping formula that the value of all land is in direct ratio to 
the number of men it bears upon its surface. Thus it has been 
calculated that by the mere fact of his arrival each emigrant in- 
creased by about ^400 the value of the territory of the United 
States. As more than 13,000,000 emigrants have disembarked 
on those shores since the beginning of this century, that alone 
must have given to American land a surplus value of more than 
^5,200,000,000. 

Other causes — namely, the general increase of wealth, the making 



DISTRIBUTION. 459 

of roads and the cutting of railways, the growth of large towns, 
the development of order and of security — have inevitably con- 
tributed to heighten that surplus value of land which English 
economists call by the expressive name of unearned increifient. 

Naturally enough this surplus value of the earth has been the 
most strikingly shown in new countries such as the United States, 
for it is there that these diverse causes act with the greatest 
intensity. From the surplus value of the land has sprung the 
fabulous fortune of Mr. Potter Palmer, the Chicago millionnaire ; 
and from the same source have Henry George's theories derived 
so large an amount of credence. As was only to be supposed, 
the surplus value is less marked in older countries where the pre- 
disposing causes operate with less energy, and where the increase 
in population has much abated, as in France at the present day. 
Yet agricultural inquiries which were made in the years 1851 and 
1882 show that between those dates, that is to say within a space 
of only thirty years, the value of land in France rose from 
;^2,440,ooo,ooo sterling to ^3,640,000,000. The rent of land 
in England was calculated to be ;2{^2 0,000,000 in the year 1800, 
and to be ^60,000,000 in 1880, having thus been trebled;^ in 
the same period the population of England alone had likewise 
been multiplied by three : the figures are 8,890,000 in 1801, and 
24,850,000 in 1879. 

Only one cause tends to stop or even reverse this upward move- 
ment of the value of land. This is the competition of new coun- 
tries, which results from colonization on a large scale and from 
great improvements in the means of transport. At the present 
time this competition has assumed vast dimensions and has led 
many people to disbeheve in the law of " unearned increment." 

Economists of the optimistic school, those indeed who hold 
that land is the product of labor, are obliged to protest against a 

1 Mr. Giffen's figures are, for 1885, ;^65,039,ooo; for 1875,^^66,911,000; 
showing a decrease of more than a million in ten years (^Statistical Journal^ 
March, 1890). — J. B. 



460 PRINCIPLES OF POLITICAL ECONOMY. 

doctrine which regards the landowner as a sort of parasite who 
monopoHzes the gains of all social progress. They do not try to 
deny the fact of the surplus value or " unearned increment," for 
it is incontestable ; but they explain it away by the improvements 
made and the expenses incurred by the landlords, and go so far 
as to assert that if we could reckon up all the expenditure accu- 
mulated by successive owners, we should have to conclude that 
there is no land whose value is equal to what it has cost. 

The argument is an attractive one, but it is not accurate ; for 
statistics show that land which has been the object of no labors 
of improvement, such as natural meadows, or, better still, building 
sites, receive the same surplus value or unearned increment as is 
reaped by the owners of other kinds of land. For the agricultural 
statistics for the years 1852 and 1882 show that between those 
dates the value of fields and grazing-lands, in France, of the 
lowest class rose from ^22 i6s. per acre to ^40 3^., a rise of 
about 80 per cent ; whereas the value of arable land of the best 
description rose during the same period from ^^6 los. to ^54, 
or a rise of only 50 per cent. 

No doubt, if we were to add together all the expenditure made 
on any piece of French land, from the moment when it was first 
cleared by a Gaul in the times of the Druids, our total would be 
infinitely greater than the present value of the land ; but for our 
calculations to be accurate, we ought also to add in all the crops 
yielded from the same date onwards, and then we should probably 
find that the land had certainly given a rent which increased 
regularly with the advance of time. 

We often hear people say, '' Land only returns 3 per cent or 
2^ per cent. That is not much." They should be asked in turn, 
in accordance with what natural law is land bound to yield them 
an income of 3 per cent a year. No doubt they would reply, 
''Because we paid ^1000 for our land, and it is only fair that it 
should bring in /^^o a year." They fail to see that that only begs 
the question. It is not because ^1000 has been paid for the 
land that it ought to yield ^30. In virtue of the monopoly of 



DISTRIBUTION. 46 1 

landed property it gives its possessor a rent of ^30, and it is for 
that reason that ^1000 have to be paid for it. 

VII. The Nationalization of the Land. 

If we regard as proved the law of ground rent or the principle 
of the unearned increment, — that is to say, if we beUeve that a 
great portion, if not the whole, of the value of land is due to social 
causes, which are collective, and entirely independent of individual 
labor, — we are naturally tempted to conclude that it would be 
just to restore that portion to those who are entitled to it ; i.e, 
to society at large. For the attainment of this end several meas- 
ures have been proposed, which are usually termed systems of 
land nationalization. 

Firstly. One scheme would be to do away with perpetuity in 
landed property, and would make it resemble what lawyers call 
an emphyteusis, or, more simply, a temporary concession. The 
State, as nominal proprietor of the land, would grant it to indi- 
viduals for the purpose of working it, for periods of long duration, 
for fifty, seventy, or even ninety-nine years, as is the case with 
railway concessions. On the expiration of the term the State 
would re-enter in possession of the land (as it will about the year 
1948 for the French railways), and would then grant it again for 
a fresh period. But the obtainers of the new concession would 
now have to pay the equivalent of the surplus value, by which 
they would benefit, either in the shape of a lump sum or as an 
annual rent. In this manner the State, as the representative of 
collective society, would receive the whole of the unearned incre- 
ment, which would sooner or later bring in an enormous revenue. 

Such a system would not be irreconcilable with an effective cul- 
tivation of the land, as is too hastily asserted, especially if care 
was taken to renew the concessions some time before the expira- 
tion of the term. Certainly such a system would be more con- 
ducive to successful farming than the actual state of things in 
countries such as Ireland, or even England, where almost the 



462 PRINCIPLES OF POLITICAL ECONOMY. 

whole of the land is cultivated by tenants at will, who can lose 
their tenancies at the landlord's pleasure. 

The execution of such a project would meet with an insur- 
mountable obstacle in the prior operation of the buying back of 
the land, if that were done with due regard to equity, for that 
operation would be absolutely ruinous. Take the case of France. 
The total value of landed property in France may be estimated to 
be ^4,000,000,000 sterling. Let us grant that the purchase could 
be effected at this price ; then it would be necessary to borrow 
that sum. Let us further suppose that so huge an issue of bonds 
would not damage the credit of the State, and that it could still 
borrow at 4 per cent. Even then ;£ 160,000,000 would have to 
be entered on the expenditure side of the accounts of the State. 
On the other hand, we should have henceforward to deduct from 
the receipts all the taxes that at present fall upon land, for these 
would clearly be wiped out by confimo, the creditor and the 
debtor being one and the same. Thus the deficit would be nearly 
;^200,ooo,ooo. True enough, pe?- co?itra, the State receipts would 
be increased by the whole amount of rents ; but, according to the 
same statistics, the net return from land is a little less than 3 per 
cent. If, once more, we grant that the State would be able to 
work the land as profitably as private persons can, the receipts 
under that head would be less than ;^i 20,000,000, though the 
effects of the law of surplus value would bring about a progressive 
increase. Thus, when all is said and done, the finances of the 
State would for a long period be burdened by an enormous deficit, 
which could only be met either by overwhelming the country with 
taxation, or by a headlong plunge into bankruptcy. 

Hence we can only seriously think of resorting to such a system 
of land-nationalization on the hypothesis that no purchase need be 
made. This hypothesis is realized in new countries which are not 
yet fully peopled, such as Australia, the United States, some of 
the South American states, and Siberia. In those regions the 
State has granted to colonists, either gratuitously or at a nominal 
figure, the deeds which guarantee property in perpetuity. But 



DISTRIBUTION. 463 

the system might very well be altered. The State might retain 
the ownership of the land, and only concede temporary possession, 
which should, however, be of sufficient duration to insure the 
opening-up and cultivation of the holdings. This has been done 
by the Dutch government in its large colonial possessions. It is 
the owner of the land, but does not sell its estates, merely con- 
ceding them for periods of seventy-five years. 

In old countries, too, this system might be adopted with regard 
to mining concessions. Henceforth the State might make it a 
rule to assign a fixed limit to all new concessions of mines, say for 
fifty or perhaps ninety-nine years, and to grant these concessions in 
the future, or to renew them when they expire, by means of auction 
to the highest bidder. Unearned increment applies to mines 
more powerfully than to any other form of property. The value 
of the coal-mine concessions in the Department of the Pas- de- 
Calais has risen from ;^i, 080,000 in 1853-63, when they were 
first granted, to ^11,840,000 at the present day. Thus in thirty 
years the value has been multiplied by more than ten. 

Secondly. The second system which was proposed by the two 
Mills, and has latterly been revived by Henry George,^ under the 
name of the " one-tax " system, would be to lay on landed property 
a progressive tax, the increase in which would be calculated to 
absorb the unearned increment or surplus value as it is produced, 
and allow of the abolition of all other taxation. 

The great practical objection to this plan is that there are 
usually two elements in the surplus value of land : one arises from 
the social and extrinsic causes already set forth, but the other 
may result from the owner's labor and from the advances he has 
made. Were we to establish such a tax, we should have to be 
careful to abstain from touching this second element ; not only 

1 Similar ideas were eloquently expounded by Patrick Edward Dove. See 
J. W. Sullivan's paper in the New York Twentieth Century Library (No. 12, 
1890), with the question-begging title, " Ideo-Kleptomania." See, too, the 
author's article on " Quelques doctrines nouvelles sur la propriete fonciere " 
{^Journal des Econo7nistes, May, 1883). — J. B. 



464 PRINCIPLES OF POLITICAL ECONOMY. 

for fear of violating the principles of equity, -— for this portion of 
the increment is the product of labor, — but also for fear of dis- 
couraging all initiative and all progress in agricultural operations, 
which, we are aware, even now go too much by way of routine. 
Now it is impossible to follow out such a plan. 

Still without resorting to these extreme measures, the monopoly 
of landed property and the law of the surplus value or unearned 
increment might be rendered almost harmless were free access to 
property granted to all men and free circulation of land insured 
by legislation adapted to such an end. What does it matter if 
the right of property in land is perpetual, if it is mobile and only 
abides for a time with each possessor? Thus the perpetuity of 
the right becomes a mere phrase (Clark, " Influence de la terre 
sur le taux des sal aires," Revue d' Economie politique, May-June, 
1890). We must now consider the means of effecting this. 

VIII. The Organization of Landed Property. 

The organization of landed property and the laws which regu- 
late it clearly depend on our conception of the institution of 
landed property itself. 

If, as we hold, the legislator admits that such property is based 
on social utility and that its 7'aison d'eti^e is the necessity of 
obtaining from the soil the maximum quantity of articles of sub- 
sistence, he must clearly endeavor to place land within the pos- 
session and keep it in the hands of those who can obtain the 
largest returns from it ; i.e. those who cultivate it. 

A school, whose motto is " the land for the peasants," declares 
that land ought exclusively to belong to those who cultivate it 
with their own hands. That is too sweeping a statement ; for, 
without himself putting his hand to the plough, a man can well 
enough receive good returns from the land, and can farm it pro- 
ductively, at the same time cultivating it more intelligently than 
peasants can. Thus it is wise that we should have large farm- 
ers to work side by side with peasant proprietors, but only in 



DISTRIBUTION. 465 

sufficient measure to serve as an example and a stimulus. On 
the other hai^d, peasant proprietorship should be recommended 
as the general rule. The following is our reason for this opinion. 
Large holdings cannot do without hired labor ; but in agriculture 
hired labor necessitates a terrible waste of work. Firstly, super- 
intendence is far more difficult than it is in a workshop or factory, 
and the wider the estate, the greater is the difficulty. Secondly, 
the results of the work done by an agricultural laborer cannot 
usually be appraised until after the expiration of a very long period, 
and even then in a most uncertain fashion. Thirdly, the industrial 
employer's valuable resource of piece-work cannot be widely 
appHed in agriculture, for thorough performance of the work is of 
more importance than rapidity. 

Some systems of legislation have, from political motives, been 
employed to obtain a diametrically opposite result to what has 
just been advocated ; i.e. to concentrate and retain landed prop- 
erty in the hands of ruhng classes who govern but do not cultivate. 
Such is the Enghsh system of property. Primogeniture, entails, 
the formalities required for and the expenses incurred in each 
alienation, have placed the proprietorship of almost the whole 
territory of the British Isles in the hands of a few hundred 
famihes who compose the House of Lords. This system has 
raised up a wealthy aristocracy over the heads of the poverty- 
stricken people, and shows the spectacle of enormous fortunes 
which are acquired without labor and grow, as it were spontane- 
ously, in idle hands. We do not deny that this method may have 
conduced to the political greatness of the British Empire ; but in 
our opinion it is not only inequitable, but is also calculated to 
ruin irretrievably the very institution of landed property in the 
eyes of the general pubHc. Thus nowhere has it been attacked 
more vigorously than in England. A proof of this is the prodigious 
success lately achieved in England by Henry George's works and 
his plans of land nationalization, and the measures taken even t)y 
the most Conservative of ministers for the modification of the 
Irish land system. There are estimated to be about 1,200,000 



466 PRINCIPLES OF POLITICAL ECONOMY. 

owners of land in the British Isles, but the immense majority of 
them, three-quarters at least, only possess an insignificant area 
(less than an acre, a small cottage with a garden attached). We 
can obtain a more accurate idea of the distribution of property 
in the British Isles if we recall to mind that half of England and 
Wales is possessed by 4500 persons, half of Ireland by 744 per- 
sons, and half of Scotland by only 70 persons. 

The case is different in democratic countries, particularly in 
France. There the laws tend not to hinder, but to favor with all 
their might, the divisibility of the land by means of the law of 
equal division amongst all the heirs, and the ti'ansmissibility of 
land by the prohibition of entails and the limitations imposed 
on the settlement of estates held in mortmain. The result has 
been that the possession of part, at least, of the land has been 
obtained by those who have to cultivate it ; and hence has arisen 
that vigorous race of French peasants whom English economists 
regard with envious eyes, and whose very existence should long 
serve to baffle any attempt to introduce the collectivist system 
into France. 

The total number of landowners must be estimated to be 
7,000,000 or 8,000,000. That of itself is an imposing figure ; 
for together with the members of their families, these land pro- 
prietors probably constitute more than half the population of 
France, or a proportion which is most likely higher than is the 
case in any other country. Nevertheless, most of these plots are 
exceedingly small. 

Various remarks must be made as to the French laws relating 
to land. Article 826 of the French Civil Code decrees that 
division of property shall be not only equal in value, but shall also 
be an equal division of the actuaP property itself, so that every 
estate, whether large or small, is mercilessly divided into pieces 
on the owner's death. This method has been keenly and justly 
attacked, especially by the CathoHc school and by Le Play's fol- 

1 The French term, " en nature " means that each co-heir shall have an 
equal share of each kind of property, whether real or personal. 



DISTRIBUTION. 467 

lowers. It can be seen that the intention of the law is to prevent 
the formation of large estates, both on political and on economic 
grounds {latifundia perdidere Italiam) \ but, when in each gen- 
eration it violently parcels up agricultural lands, the peasant's plot 
as well as the large landowner's estate, and thus destroys a large 
number of them by breaking their unity, it gravely compromises 
the interests of agriculture, without being able to plead any benefit 
to the democracy. 

The French law is also inconsistent in decreeing inalienabihty 
in certain cases ; for instance, as regards the real estate of women 
married under the dowry system, and particularly in burdening 
the succession to estates with enormous government duties, which 
usually amount to 10 per cent, and assume even higher propor- 
tions for small estates. 

It may now be asked whether free trade in land is the surest 
means of attaining the end we have in view ; namely, the granting 
of proprietorship in land to those who can turn it to the best 
account. The Liberal school affirms that this is the case, relying 
upon the principle that under the working of free trade articles go 
spontaneously into the hands of those who can best utilize them. 
We have ourselves admitted the truth of this law. 

But land cannot be assimilated to any commodity, or even to 
an instrument of production, the purchase and sale of which are 
determined solely by economic motives. Men have other aims 
when they seek to obtain possession of the land ; namely, political 
power, social standing, or the pleasures of a country life. By these 
motives they may be led to extend their possessions without why 
or wherefore, and, in particular, to refrain from selling their lands, 
even when they can no longer cultivate them usefully. 

Indeed, experience shows us that in more than one instance 
free trade in land has brought about the ruin of small proprietor- 
ship in the interests of large proprietorship or of speculation, has 
taken land away from those who cultivated it, and has led to the 
creation of an agricultural proletariat. Such was the result in 
parts of India of the too hasty introduction of private property, 



468 PRINCIPLES OF POLITICAL ECONOMY. 

together with the right of aUenation ; and the native population of 
Algeria will certainly be affected in the same manner if the prin- 
ciples of the Torrens Act are there applied without the taking of 
due precautions. Our conclusion, therefore, must be that when 
free sale has not been sufficient to eff"ect a distribution of landed 
property which is in harmony with the real aim of that institution, 
the legislator must interfere, and introduce compulsory modifi- 
cations. 

The possible methods of legislative interference are difficult to 
indicate with precision, for they must vary according to circum- 
stances. Still we may make the following suggestions : — 

A maximum might be assigned to the extent of land that can 
be owned by any one man, so as to avoid latifundia, or huge 
estates. At present in Scotland one landowner of himself pos- 
sesses 1,326,000 acres. 

On the other hand, a minimum might be fixed so as to prevent 
an excessive subdivision which is prejudicial to successful farming. 
Any landlord who leaves his land uncultivated might be expro- 
priated in the interests of the public.^ In China all land in that 
condition has to return into the possession of the State, and in 
England the Radical party has proposed a bill for that purpose. 

The exchange of small portions of their land might be made 
compulsory even for refractory owners, if these plots are inter- 
mingled in too confused a manner. Such a provision has been 
adopted in some of the German states. 

It might be declared inadmissible to practise sale or any other 
form of transmission with regard to a certain extent of land. Thus 
the family estate would escape the clutch of creditors. This insti- 
tution, under the name of the Homestead Law, is, as we have 
previously mentioned, in existence in the United States. 

Finally, farm rents might be subjected to certain conditions as 
regards their amount in money, the duration of the tenancy, the 

1 The English public were made familiar with this idea by the motions 
made from time to time by the late Charles Bradlaugh in the House of Com- 
mons. — J. B. 



DISTRIBUTION. 469 

amounts payable for the surplus value or the unearned increment, 
and for improvements made by the holders, and so forth. The 
Enghsh government has been obliged to interfere in this fashion 
most rigorously, it might even be said in a socialistic manner, with 
reference to the property of Irish landlords. 

Even the French Civil Code cannot be said to be an example 
of perfect freedom in the disposal of landed property ; for, as noted 
above, it decrees a division of the land on each succession caused 
by the death of a proprietor. 



Part 1 1. — The Various Classes of Sharers. 

When we observe the manner in which our fellow-men live and 
the sources whence they obtain their living, at first sight the con- 
ditions seem to be so varied and so complex that we appear to 
lose all our bearings. Still after a httle thought it becomes fairly 
easy to distinguish certain great classes, which we can recognize by 
some moderately well-marked characteristics. There are as many 
as five of these categories. 

The first class comprises peasants, landowners, artisans, and 
shopkeepers, who possess an instrument of labor, whether in the 
shape of land or of capital, which they utilize to advantage by 
means of their own personal labor. With them may be ranked 
the Hberal professions : barristers, doctors, artists, and so forth, 
who also live by their personal work, by selling their services 
directly to the public, and who always possess the capital which is 
necessary for the exercise of their profession. Their income is 
derived from what is usually called their honorarium or fees. 
Unfortunately in the vocabulary of political economy there is no 
specific name for the entire class. As their special trait is to 
labor independently of all other persons, we shall call them auto- 
nomous producers. The particular form of income which they 
receive also lacks any denoting term. 

Those of the second category possess land or capital in too large 
a quantity to utilize advantageously by their own personal labor. 
They are therefore obliged to employ other men's labor. In 
economic language they are called employers or capitalists^ in 
popular speech they are termed masters, and their share receives 
the name oi profit. 

1 The French term is entrepreneur. 
470 



DISTRIBUTION. 47I 

Next come the proletariat : as their only property consists in 
their pair of arms, for a purpose of earning a living they are 
obliged to put themselves in the pay of capitalists or landowners, 
and have to receive from them the instruments which are indis- 
pensable for production. They are generally termed wages- 
earners {salaries), or less definitely workmen. Their share is 
designated wages. 

This class might include (so at least is the practice) all public 
servants who receive a salary from the State, municipalities, com- 
munes, or parishes, and so forth. In France there are as many 
as 500,000 of these, and the army contains as many more. How- 
ever, as these persons are employed by society as a whole and 
not by an individual, their position, legally as well as actually, is 
very distinct from that of workmen, and properly speaking they 
ought to be placed under a special class. 

Domestic servants incontestably fall under the head of the 
working classes, and their income bears the name of wages. 

A fourth class consists of those who do nothing and live on the 
particular income that they receive from any form of capital, land, 
houses, or capital properly so-called ; these various returns are 
called land-rent, house-rent, interest, or dividend. The recipients 
are termed /<?^//<? of independent means, or annuitants {rentiers in 
the original). 

Besides these great divisions, there is another category which is 
less apparent, but which cannot escape unnoticed in spite of the 
shadow in which it lurks. This contains all those who live neither 
by their labor, for they do nothing, nor from their income, for 
they have none, but solely on pubhc or private charity. These 
are called the indigent ox pauper classes, and what they live on is 
termed alms. 

The first and third of our divisions form the very large majority 
of the people of every country; the three others are in the 
minority. 

The reader may be surprised to find no mention of landowners, 
but in our opinion there is no reason to make them into a distinct 



472 PRINCIPLES OF POLITICAL ECONOMY. 

class. The peasant proprietor ranks as an autonomous producer, 
the landowner who works his estate for a profit is a master or 
employer, the owner who lets out his land in farms is of the 
annuitant class. The usual practice of putting under the same 
heading social conditions which are so entirely different, is con- 
trary to all scientific principles of classification. 

We are often told that there are no classes nowadays ; it would 
be better if we were to say more modestly that there are no longer 
any castes. The latter statement is true for two reasons. 

Firstly. There is no legal obstacle that prevents a man from 
passing from one class to another, if he is able to do so ; as a 
matter of fact, there are people who rise from being wages-earners 
into the class of autonomous producers, of masters, or even of 
annuitants. Moreover, there are others who fall down into the 
indigent class. 

Secondly. The same person can very well belong to several 
classes simultaneously, and such a state of things is exceedingly 
common. Many small producers, most masters, and even some 
wages-earners possess a large or small amount of stock and 
municipal or railway debentures, and in that respect can be ranked 
as annuitants. Again, many wage-receivers obtain public relief 
and therefore also belong to the indigent or pauper class. It is 
this overlapping and blending that make it impossible to draw up 
statistics as to the various classes of sharers. 

However, the above categories possess specific characteristics, 
which are clearly enough marked for us to be able to use the word 
" classes " in the scientific meaning of the term. 



CHAPTER I. 
THE AUTONOMOUS PRODUCER. 

I. Why this Condition is the most Favorable for a Fair 
Distribution of Wealth. 

The autonomous producer, as we have defined him, is the man 
who labors on no one else's account, and makes no one else work 
for him. He suffices for himself, and receives the whole of the 
product of his labor, without any other man dreaming of disputing 
his right to it. 

The type of this class of producers is the peasant, who culti- 
vates his land by means of his own arms alone (or those of his 
family), and with his own capital, and who reaps what he has 
sown. But this class also includes the artisan who works for the 
public, employing no other hands but his own or his apprentice's 
(be he shoemaker, tailor, locksmith, blacksmith, or what not), 
and even the shopkeeper, if he himself lays out for a profit his 
little stock in trade. 

Such a system, were it generaHzed, would be very conducive to 
a satisfactory distribution of wealth. On account of its extreme 
simpHcity it would prevent most of the conflicts that now arise 
between the various classes of sharers, especially between labor 
and capital. It would not cause the reign of absolute equality — 
and that would be all the better ; for it would not interfere with 
the continuance of the causes of inequality which result from the 
natural differences between men, or those which arise from the 
unequal power of the land and instruments of production put 
into use, or even of the good or bad luck which is so closely 
associated with all the acts of man. Still it would not allow 
these inequalities to pass certain hmits, if, indeed, we mean to 

473 



474 PRINCIPLES OF POLITICAL ECONOMY. 

adhere to the terms of our hypothesis, and suppose that the 
producers employ only their own labor ; for the amount of land 
or of capital that a man can work with his own unaided efforts is 
necessarily somewhat limited — - a few acres, if we speak of land, 
a hundred pounds or so, if we refer to capital. 

A society composed only of isolated producers would thus escape 
all inequalities save those which spring from Nature herself, or 
from the vicissitudes of events, and would be within a hand's 
breadth of realizing the ideal of distributive justice. 

This class, therefore, is usually spared by the socialists in their 
attacks on the existing order of things. They confine themselves 
to declaring that its doom is irrevocable, and that those who still 
represent it in present day society will speedily be blotted out 
by the fatal progress of economic evolution. But why? Because, 
although this system conduces to a satisfactory distribution of 
wealth, it is, they say, incompatible with the requirements of large 
production. Isolated production means small industry and small 
farming, whereas the future belongs to large industry and large 
farming under the regime of collective production. To perpetuate 
isolated production would be to " decree mediocrity in everything." 

Karl Marx, in his Capital, recognizes the advantages of a sys- 
tem under which the laborer employs his own capital, "just as 
the virtuoso plays on his instrument." "But," he continues, "it 
excludes concentration, co-operation on a wide scale, the use of 
machinery, the application of man's knowledge to the subduing 
of nature, concert and unity in the ends, the means, and the efforts 
of collective activity. It is only compatible with a narrow and 
limited state of production and of society." 

On this point economists are at one with socialists, as may be 
seen in M. de Molinari's work, E Evolution economique au XIX" 
siecle. 

We cannot absolutely accept this somewhat peremptory judg- 
ment. 

Mediocrity in the conditions of Hfe, aurea mediocritas, need 
not terrify us; and the ancients, who were as good judges on 



DISTRIBUTION. 475 

this matter as we are, regarded it as one of the requisites for hap- 
piness. Even from the point of view of production no other sys- 
tem can better excite the maximum amount of productive activity, 
for each man works for himself. Moreover, whatever may be 
said, it does not exclude co-operation or the methods of large 
production, provided that it is completed by association on a large 
scale. Association is also necessary for the correction of the indi- 
vidualist or even egoistic principle, which might find in this system 
an environment too favorable for its growth. 

Still, whatever be its virtues, we must confess that this social 
class is now greatly endangered by the incessant development of 
large industry. We need only repeat that the course of evolution 
may have many surprises in store for us, and may bring back once 
and again forms which were believed to have vanished forever. 
Were a means to be found of replacing the steam-engine by 
natural forces which could be utilized in each household, small 
industry might be filled with new life ; and as to small farming, 
that not only still lives, but never ceases to extend. 

France has the happy privilege of being one of those countries 
in which the class of autonomous producers is the most numerous, 
and this comprises not only the peasants, who are one of the 
characteristic types of the race, but also the artisans and the shop- 
keepers. It is this class that gives so firm a basis to the social 
organization of France, and enables it, better than any other land, 
to withstand the terrible crises of its history. The results may be 
a certain spirit of routine, some dulness in economic action, and 
an inability to see all the. advantages of co-operation. Neverthe- 
less, any possible modification of it in the future might lead men 
to look back with regret upon the old order. 

It is rather difficult to calculate the number of peasant pro- 
prietors in France, but in any case we must disregard the common 
assertion that the greater part of the country is in their possession. 
In the first place, only a quarter of the cultivable land (nearly 
32,000,000 out of 123,000,000 acres) is possessed in the state of 
small property; that is to say, in tracts of less than 15 acres. 



476 PRINCIPLES OF POLITICAL ECONOMY. 

Further, out of the 6,000,000 or 7,000,000 owners who share this 
area, nearly half possess only shreds of land of a couple of acres or 
so, and, as that is not enough to live on, they are obliged to hire 
themselves out as day laborers. The number of actual peasant 
proprietors, i.e, proprietors of a sufficient amount of land to live 
on, can scarcely exceed 3,000,000. Small industry (the artisan 
class) numbers rather more than a million, and small businesses, 
such as shopkeepers, inn-keepers, etc., stand for rather less than 
1,000,000. As we have previously observed, we cannot con- 
gratulate ourselves on the last item. To sum up : the number 
of autonomous producers in France may be reckoned to be 
15,000,000, which, when their families are taken into account, 
would make 20,000,000 inhabitants, or rather more than half of 
the entire population of France. 



CHAPTER II. 
THE MASTER. 

I. The Part played by the Master, and the Legitimacy 

of Profits. 

Our first class of isolated producers was exceedingly simple ; 
proportionately complex is the position of this second class of 
sharers. 

Master^ or rather employer {entrepreneur in the original), which 
is the customary term used in political economy, is the name 
given to every man who possesses an instrument of production, 
whether land or capital, which is too large for him to work by his 
unaided efforts, and who has therefore to utilize it by means of 
the labor of hired workmen. If a man owns more than ten or 
twelve acres of land, he will be unable to cultivate it by himself, 
and will be obliged to employ day-laborers. If he possesses a 
capital of £2>^o or ^400, he will be unable to turn it to account 
in any industrial or commercial business without resorting to other 
people's labor. 

So far the situation seems to be a perfectly normal one. It is 
quite legitimate that a man who has too much wealth should em- 
ploy it to supply work for those who have not enough. Nay, if 
we consider the matter farther, we can easily discern a fitting 
harmony in the fact that the capitalist can no more dispense with 
the laborer for the profitable employment of his capital than the 
laborer can do without the capitalist for the utilization of his aims. 

But we are going rather too fast. The landowner or the capi- 
talist, who employs workmen to labor on his land or with his 
capital, regards the product of the business, whatever it may be, 
whether it takes the shape of agricultural produce or of manu- 

477 



4/8 PRINCIPLES OF POLITICAL ECONOMY. 

factured goods, as his property ; and the selling-price of these 
products, when the cost of production has been deducted, forms 
his income or his profits. Here we reach dangerous ground; for 
we may ask, in virtue of what right does the master appropriate 
for himself a value which is the product of the labor of his 
workmen ? 

The master replies, through the medium of the economists, that 
the article produced is altogether his work, for without his initia- 
tive it would not exist at all ; if he has not made it, at any rate he 
has had it ?nade. He first conceived the idea of it, and that is the 
primordial and essential act of all production ; he, too, has sup- 
plied the means of executing it. Who, then, should have more 
right to the article than he has? The workmen? But they have 
merely executed the orders they have received ; they have only 
been the implements in the hand of the employer. Here is a 
proof: if we take two businesses that employ an equal number of 
workmen, we constantly see one succeed and the other fail miser- 
ably. Industry may be compared to warfare. For who wins the 
battle ? The general. No doubt, good soldiers, and good arms like- 
wise, contribute to the happy issue, but they are the conditions of 
success and not the efficient cause ; this is shown by the fact that 
the same troops with the same material of war will be beaten if 
they are under a bad commander. In business matters, too, 
generalship is everything. The employer is the "captain of in- 
dustry " ; victory or defeat depends on him. If he succeeds, he 
alone reaps the fruits of victory ; if he fails, on him alone fall the 
consequences of defeat, and he is punished by ruin. 

The socialists shrug their shoulders at this picture, and say that 
the master is only a parasite, or, if the term be preferred, a specu- 
lator, whose sole business is to buy to sell again. What does he buy? 
The power exerted in the workman's toil in the shape of manual 
labor. What does he sell again ? The same power of labor in the 
concrete form of goods. He buys it cheap in the labor market 
where the proletariat are obliged to sell themselves in order to 
live, and where the supply is always in excess. He sells it again at 



DISTRIBUTION. 4/9 

a good price because he is able to make this power of labor yield 
all it can, by lengthening the hours of the working-day as far as 
possible, by enticing his men with the deceitful bait of piece- 
work, and by wearing out women and little children by means of 
machinery which turns their weak arms to account. To pay labor 
as little as possible and to make it yield as much as possible, that 
is the whole secret of the master's profits ; that is the " mystery 
of iniquity." 

The first of these two portraits is excessively flattering; the 
second is a distorted caricature, but both of them bear some sort 
of resemblance to reality. 

Given the economic organization of society, it is certain that we 
must have the master to play his part. The elements of produc- 
tion are dispersed amongst a multitude of persons : on the one 
side, the masses who have only their arms, and possess neither 
land nor capital ; on the other, those who have capital and land, 
but have no desire or intention to take to manual labor. Now to 
produce wealth at all, especially on a large scale, it is absolutely 
necessary to combine these various factors of production in one 
and the same productive operation. But who is to unite these 
scattered elements and cause them to converge to a common end ? 
To whom is to fall the task of foreseeing men's wants, of harmon- 
izing production with consumption, of determining the path on 
which the labor and capital of a country should be employed? 
Obviously not to the proletariat ; it must, then, fall to the capitahst, 
and it is clear that he who establishes the business will keep the 
profits for himself. 

Although the social function of the employer is partly forced 
upon us by the necessities of the economic situation, it is none 
the less of evil consequences ; for it makes the problem of distri- 
bution almost a hopeless one, keeps up the acute state of conflict 
between capital and labor, and marks ofl" society into two hostile 
classes. We cannot prevent workmen from thinking that they 
have rights over the wealth that has proceeded from their hands ; 
we cannot prevent them from bitterly watching generations of 



480 PRINCIPLES OF POLITICAL ECONOMY. 

masters or shareholders succeeding one another in turn, and 
growing rich from factories or mines in which they, the workers, 
have also labored from father to son, and have still remained poor. 
True enough, as was urged by the employers' advocates, they 
have only been tools ; but the misfortune of present society lies 
in that very fact that one man can be another's tool. Far differ- 
ent is this from the first precept of morality as formulated by 
Kant : always to remember that we must regard our neighbor's 
personality as an end and not as a means. Are there any ways 
of escaping from our difficulty? There are only two. 

We might return to the system of isolated production described 
in the last chapter ; but such an attempt would be utterly vain. 
All we can do is to strive to preserve such relics of that order as 
still remain. 

Our other course would be to organize production on a basis of 
association, but not the association practised nowadays, in the 
form of joint stock companies, capitalists employing whole armies 
of wages- earners, companies which possess all the disadvantages 
of the employer system without its advantages ; for that form of 
association has the most serious defect of accentuating the divorce 
between capital and labor, by forming two distinct classes in the 
same undertaking — on the one hand, the workmen, who labor in 
a business the profits of which they do not receive — and, on the 
other hand, the shareholders, who receive the profits of a business 
in which they do not labor, and of the very nature of which they 
are often ignorant. When the ownership and direction of a con- 
cern are in the hands of a company, i.e. a fictitious and invisible 
person, that ownership and authority fall greatly in the estimation 
of the workmen. Even from a productive point of view these 
collective undertakings share some of the disadvantages which are 
shown by great pubUc administrations, and which would be mani- 
fested on the application of the coUectivist system ; namely, an 
absence of individual initiative, bureaucratic measures, and some 
waste of labor and of capital. 

We should strive rather to form co-operative associations of 



DISTRIBUTION. 48 1 

laborers, who would work on their own account, and use instru- 
ments of production which belong to themselves. Thus they 
would be able to receive the whole product of their labor. That 
would be a return to what should be the normal order of things, 
in which capital would be the instrument of labor ; not as now, 
when labor is the instrument of capital. In that direction we 
must hope that the solution to be effected by the future will lie, 
for we ourselves can conceive no other ; but when we deal with 
co-operation we shall see the difficulties in the way of the success 
of such associations* The principal difficulty is how to do without 
the master. 

We must not forget the solution proposed by the collectivist 
school, with which we are well acquainted. They would put an 
end to the classes of capitalists and masters, by abohshing private 
property in capital and in instruments of production, which would 
then be handed over to society. Society henceforward would be 
the only master or employer. As it would not try to make any 
profits, or, what is the same thing, would pour the profits into the 
common treasury in the form of public revenue, the people would 
be freed from the enormous tribute which is now levied annually 
by landowners and capitalists, as profits, gains, interest, dividend, 
and land-rent, and which (in France) cannot be less than 
;£"3 20,000,000 or ^400,000,000 a year. 

So large a saving would certainly be worth the trouble of 
making, if it could be proved that these employers and capitaHsts 
are of no use, and are merely parasites. But if, as our previous 
explanations seem to show, these employers do play an important 
part, and would be extremely difficult to replace, and if, unfortu- 
nately, the forcible appropriation by the State of all agricultural, 
industrial, and commercial businesses, and the abolition of all 
individual enterprise, were to reduce the production of wealth 
perhaps by half, in that case we might find that we had made a 
very bad bargain, and the saving would cost us dear. 



482 PRINCIPLES OF POLITICAL ECONOMY. 

II. The Laws which regulate Profits. 

When once we have admitted the social function of the master, 
whether wilHngly or against our inclinations, the legitimacy of 
profits naturally follows. We only have to determine the laws 
which regulate them. 

As we are aware, the production of wealth requires the con- 
sumption of other wealth, in the shape of raw materials, imple- 
ments, and wages {i.e. articles of subsistence consumed by the 
workmen). If the operation has been performed well, the value 
of the wealth produced will be higher than the value of the 
wealth destroyed ; if the work has been done badly, the value of 
the wealth produced will be less than that of the wealth destroyed. 
This is, then, a very delicate process, which requires a nice appre- 
ciation of the wants of consumption, and demands predictions 
which often take long to fulfil, and in which mistakes may be 
easily made. The employer has to carry out this operation. If 
he conducts it successfully, his recompense is the excess of the 
values produced over the values consumed ; if he has erred in his 
forecasts, he has to bear the difference between the values pro- 
duced and the values destroyed. In that case he will lose. 

The values destroyed in the process of production are what the 
employer calls the cost of production ; the excess of the values pro- 
duced over the values consumed forms his 7iet product or profits. 
Profits are limited by no necessary law. If the employer is skilful 
enough to produce goods to a high value, and spends but httle on 
them, his profits will be very great. That will be so much the 
better for society, for this difference of values exactly shows that 
relatively useless things have been sacrificed for the production of 
an article, which, relatively speaking, is exceedingly useful, or at 
any rate answers to a very intense desire. 

We must not conclude from this that the employer and society 
take identically the same standpoint. Society measures the cost 
of production by the quantity of raw material destroyed and the 
amount of labor employed. The employer estimates it according 



DISTRIBUTION. 483 

te the sums he has to pay out to his workmen as wages and to 
capitaHsts as interest. Now, as we are here deaKng, not with a 
destruction, but only with a transference of wealth, — for the 
expenditure of the employer goes towards the income of other 
classes, — it matters Httle to society whether the expenses are 
increased or reduced. Take a piece of land which yields a gross 
produce of ;z{,""2000. The owner says, "I must deduct ;^i6oo 
from that for what I pay for manual labor, so that my returns only 
come to ;£400. Not a large sum, to be sure ! " Very likely not ; 
but these ^1600 which are distributed among the workmen form 
part of the income of society as a whole. Hence it is sometimes 
said that, socially speaking, there is no difference between net 
produce and gross produce ; but that statement is a little too wide. 

As we are aware, under the action of competition the value of 
things always tends to approach the cost of production, and we 
have already more than once explained this mechanism. If, then, 
there is perfect freedom in industry, — if the producer is not pro- 
tected by a legal monopoly, or letters patent, or protective duties, 
— the employer will not often make very high profits, and, in any 
case, not for long. 

Now what is the minimum to which competition can reduce 
profits ? Clearly we cannot suppose that it may reduce profits to 
zero, by lowering the price of articles to the level of the cost of 
production, for in that case the employer would make no gains, 
and would cease to produce. 

The English school teaches ^ that profits are included in the 
cost of production. Though such a statement is somewhat start- 
ling at first, it may be, justified, if we consider that profits, 
under the action of competition, are resolved into wages, interest, 
redemption, and insurance. But these are the ordinary elements 
of the cost of production. 

Between the cost of production and the seUing price there must 
always be a certain margin, which represents the minimum profits. 

1 Or rather, " taught." J. S. Mill is probably meant. — J. B. 



484 PRINCIPLES OF POLITICAL ECONOMY. 

We must now determine this minimum, which is composed of 
three elements. 

Firstly, the interest and rede77iption of the capital employed, 
calculated according to the normal rate of interest in the market 
for capital. In every society where such a market exists — i.e. 
wherever there are people who can obtain interest for their capital, 
while they stay peacefully at home and do nothing — it is clear 
that no one will amuse himself by sinking capital in industry or 
trade, unless he is absolutely certain that it will yield him an 
interest equal to that which he would obtain from the same capital 
invested in securities which he has in his desk. 

Still, a close glance at the numerous businesses which are carried 
on in any society would certainly show us some which are not suffi- 
ciently productive to remunerate at the current rate the capital 
which is engaged in them. How is it, then, that such a business 
continues to go on? We can easily explain this contradiction by 
looking at the nature of the capital employed. If it be fixed 
capital, even if we wished, we could not give it any other destina- 
tion than that for which it was formed. The choice lies between 
abandoning it altogether, or being content with however small a 
return it may yield. Obviously, the latter course is taken, for it 
is better to lose part than to lose all. Railway and tram lines 
often give instances of this. 

Secondly. The second element is the premium of the insurance 
against the various risks which the employer has to bear in their 
entirety. The object of this is not to realize gains, but to avoid 
loss. 

If, in some branch of industry, on the average one business out 
of ten goes bankrupt, the premium must be high enough to com- 
pensate for bad luck ; for unless the chances of profit were at least 
to balance the chances of loss, no one would be rash enough to 
enter on that line of business. 

Nor is this all. Grant that the business is among the successful 
ones. It will be lucky if it has not one bad year out of every ten. 
Let us suppose that this bad year swallows up half the employer's 



DISTRIBUTION. 485 

capital ; then the other nine will have to give him a surplus which 
will be enough to reimburse him for that loss. We can thus see 
that there is considerable risk, and that therefore the insurance 
premium ought to be of some height. 

Thirdly. The wages of the employ ej-' s labor, which is a com- 
plex labor, comprising initiative, direction, and control. This ele- 
ment does not figure in the profits received by shareholders in 
joint stock companies under the name of dividends ; for such 
persons do nothing, and pay a manager to conduct the business. 
Dividends, strictly speaking, should only include interest and the 
premium on insurance.^ Now the wages of the employer's labor 
clearly cannot be appraised in definite figures ; they depend on 
such matters as customs, habits, and the degree of general com- 
fort. But we may fix our ideas of the subject by saying that the 
sum ought to be equal to the salary that the employer would 
have to pay to obtain an engineer or a manager who would super- 
intend the factory in his stead. Some manufacturers in making 
out their books put such a sum to their own credit under the 
head of salary. Obviously, if the business did not reward him 
for his labor in a fitting manner, the manufacturer would choose 
another kind of occupation in which he could better utilize his 
capacity or aptitude. 

Such are the elements into which profits might be resolved on 
the purely theoretical hypothesis of a system of absolutely free 
competition. Naturally, as things actually go, the rate of profits 
will be usually above but sometimes below our limit. 

Generally speaking, there is a great tendency to exaggerate the 
rate of profits. The circu.mstance that in any business the profits 
are accumulated in one man's hands, whilst the wages are scattered 
amongst hundreds or thousands of sharers, throws a false light on 
the respective importance of the receivers. If mastership were 
to be aboHshed and profits were distributed among all the work- 

^ In this case the shareholders over any considerable period of time would 
have gained only by the interest; it would therefore have been equally profit- 
able for them to have been simply holders of debentures. — J. B. 



486 PRINCIPLES OF POLITICAL ECONOMY. 

men in the factory, in many cases each man's share would be 
increased only in very small measure. One instance will be 
enough. In 1881 the coal-miners in the whole of the Department 
of the Nord distributed a total sum of ^^821, 176 in wages and 
;^i 10,476 in profits {i.e. dividends). Thus the profits were 13 
per cent of the wages ; in other words, had the demands of the 
sociaHsts been complied with, and all shareholders been sup- 
pressed and their dividends divided among the workmen, each 
man's daily wages would have risen on the average from y. 2d. to 
3J-. 7^. 

Further, each of these elements is itself variable, and the usual 
doctrine is that each of them tends to fall progressively, whence 
it is concluded, by a perfectly logical deduction, that the rate of 
profits itself tends to fall. The rate of interest, we are told, falls 
in proportion to the increase of capital ; the premium of insurance 
against risk diminishes in accordance with the reduction of such 
risks, and finally the wages of superintendence grow lower in 
proportion as the spread of education makes such labor of man- 
agement accessible to all. To our mind these assertions are very 
hypothetical. When we speak of the fall of the rate of interest 
we shall discuss this topic again. 

III. Whether the Rate of Profits is in Inverse Ratio to 

the Rate of Wages. 

According to Ricardo, the rate of profits always varies in inverse 
ratio to the rate of wages.^ This statement gravely offends the 
economists of the optimistic school, for it supposes a permanent 
and necessary antagonism between the interests of masters and of 
workmen. However, it is perfectly substantiated if we only add, 

1 It is to be remembered that, to Ricardo, high or low wages meant a large 
or small proportion of the product as compared with profits. If the price 
doubled without any alteration in the said proportion, he would not have said 
that the rates had altered at all. See Ricardo's Pol. Econ. of Tax., Chap. 
VII. - J. B. 



DISTRIBUTION. 48/ 

as we should do in enunciating all scientific propositions, the words 
ceteris paribus^ "other things being equal." For, if the products 
of the business become greater, it is clear that the rate of wages 
and the rate of profits will be able to increase simultaneously 
without there being any contradiction. Take a piece of cloth 
which is sold for two shillings ; let one shilling go to the master 
and the other shilling to the workman. Now if in this factory, 
the number of hands and the capital engaged remaining the same, 
but the methods being improved or the labor being executed 
more intelligently, four pieces of cloth are produced which are 
worth eight shillings, then the master's share and the workman's 
share, profits and wages, might also be quadrupled, i.e. rise simul- 
taneously to four shillings. No doubt it is somewhat absurd to 
imagine that the production of any manufacture can be made 
fourfold whilst the old prices are kept up. But, even if we grant 
that the price of each piece of cloth is reduced by half and falls 
to one shilling, the total value of the four pieces will still be double 
the former value of the produce, i.e. be four shillings ; thus profits 
and wages can even now be simultaneously doubled. 

This explains how it is that in new countries, such as the United 
States and Australia, we see at one and the same time very high 
wages of 8, 10, or 12 shillings a day, and profits which amount to 
15, 20, or sometimes 100 per cent of the capital employed. For 
in such societies, which combine the methods of the most advanced 
civilization with the resources of a still virgin land, productive 
power is at its acme, and, as the gross produce of each productive 
operation is far greater than it usually is in Europe, the portion 
that falls to each of the sharers may also be much larger. 

It is a remarkable fact that these high profits and high wages 
by no means prevent the industries in such countries from fre- 
quently producing at a cheaper rate than is the case in other lands 
where wages and profits are lower, say in India, where manual 
labor may be had for the asking. We can easily account for this 
paradoxical result by showing that the greater height of the wages 
is more than compensated for by the productive superiority of the 



488 PRINCIPLES OF POLITICAL ECONOMY. 

laborers. The labor of an English workman who is paid eight 
shillings a day may be much cheaper than the labor of an Indian 
coolie who receives only sixpence a day. That would clearly 
follow if the former made thirty or forty yards of cotton stuff per 
diem, whilst the latter only made one. 

The argument often urged by protectionists is therefore as 
devoid of a logical basis as it is contrary to facts — their dictum 
being that, as free trade establishes competition between all coun- 
tries, its result must be to drive down wages by conferring the 
superiority on the country which can pay its workmen least. In 
reality international competition gives the upper hand, not to the 
land where wages are lowest, but to the one where productive 
power is the greatest. 



CHAPTER III. 
THE WAGES-EARNER. 

I. The Contract of Wages. 

The following preliminary observations are necessary : The 
classical school uses the term wages-earner {salarie) in a very 
wide sense. Some, indeed, in imitation of Mirabeau, who used 
to say that the landowner himself was only a wages- earner, indis- 
criminately put all classes of society into this category. Most 
include, at least, all those who exchange their services for money, 
e.g. barristers, doctors, public officials, and even artisans who work 
to order. We must not be deceived by this abuse of the word 
"wages- earner," for its sole object is to represent wages as the most 
general and the most legitimate mode of remuneration.^ Scien- 
tifically, the word "wages-earner" can only be applied to men who 
labor for anothei' man. Those who work for the public are not 
" wages earners " ; and popular speech is correct in this respect, 
for it uses the term "wages " only for the former class. Other men 
may have salaries, honoraria, fees, etc., but not wages. 

The wages-earner and the master are a pair of characters whose 
lot is altogether different, but whom fate has inseparably bound 
together ; there is little love lost between them, but they cannot 
obtain a divorce. The man who possesses nothing but his arms 
can produce nothing whatsoever, unless he receives an instrument 
of production ; but, under the present economic organization, no 
one can supply him with this instrument save the landowner or 

1 A chief offender is Max Wirth, who regards conquest as an achievement 
of skilled labor getting its due wages. See Lange, Arbeiterfrage, page 139. 
^J.B. 

489 



490 PRINCIPLES OF POLITICAL ECONOMY. 

the capitalist. Similarly, however large be the instrument of pro- 
duction that he owns, neither landlord nor capitalist can reap 
any returns from it without using the arms of other men. 

Now, since the force of events has thus associated labor and 
capital, the easiest thing to do would seem to be to make a real 
contract of partnership. The laborer might say, " I have con- 
tributed my bodily strength ; you have contributed your capital ; 
let us share the proceeds." In such a course alone must we 
endeavor to find a solution of the problem. But the simplest 
solutions are often those for which we have to wait the longest ; 
and though this solution is not an impossible one, as some 
economists assert, still it is certainly not on the eve of reahzation. 

For partnership requires that the partners shall have a certain 
equahty of position and a certain community in their aims. Such 
conditions are wanting when we put together the poor man and 
the rich man, the proletariat and capitalists. The latter seeks to 
make his fortune, the former strives to earn his living ; the one 
speculates on more or less distant results, the other has to think 
of his daily bread ; the motto of the one is " Risk nothing, nothing 
gain " ; the other can risk nothing, for there is naught that he can 
lose. 

Hence the failure of partnership between capitalist and laborer, 
and the substitution in its stead of the wages-system. This system 
is a bargain, by the terms of which the workman surrenders all 
rights to the product of his labor, in consideration of a fixed 
sum which is payable either weekly or monthly. 

This contract contains a double advantage. The employer is 
left with the definitive ownership of the produce, and the entire 
control of, and responsibihty for, the business ; the workman is 
guaranteed a sure reward, which is immediate, and is independent 
of all risks that may attend the business. 

There is nothing intrinsically unjust in such a contract, for we 
see it resorted to by other classes of sharers. Thus the capitalist, 
if he has transactions with the employees, usually prefers the 
bargain for a fixed sum, which is called loan at interest, to the 



DISTRIBUTION. 49I 

contract of partnership termed a sleeping partnership. Similarly, 
the landowner, when dealing with that species of employer whom 
we term the farmer, commonly prefers the form of bargaining 
called rent 'to the contract of partnership known as the metayage 
system. In botli cases all rights over the produce are voluntarily 
surrendered in exchange for a fixed annuity. 

However, for a contract of this kind to be equitable, the con= 
tracting parties should be on an equal footing. That is the case 
in the instances given above. The lender and the landowner are 
certainly on an equal footing with the borrower and the farmer ; 
nay, they possess a superior position, in virtue of which they will 
not abandon their eventual rights to the produce, unless they are 
equitably compensated. Thus the balance is usually on their side, 
and that is evidenced in the terms of the contract. But in the 
contract of wages the positions are reversed. It is the master 
who holds the whip-hand over the laborer ; and there is great fear 
that the latter, pressed by want, will do as the hungry Esau did, 
who sold his birthright for a mess of pottage. 

Further, leaving the high ground of justice, and using the 
criterion of social utility, the contract of wages is seen to have a 
vice which absolutely condemns it. As soon as the laborer sur- 
renders his interest in the product of his labor, he loses all stimulus 
to production ; nay, it is obviously to his advantage to do as little 
work as possible in return for the price the master pays him for 
his labor. He can only be made to act otherwise by the sentiment 
of duty or the sentiment of fear ; fear, not of the whip, as the 
slave feels, but of dismissal, and of the loss of his livelihood. 
The first of these motives can only influence minds of a higher 
stamp, and, moreover, grows weaker as the antagonism between 
masters and workmen becomes more pronounced. The second 
motive — and human nature may boast of the fact — has never 
wrung any good results from man. 

Further, the interests of masters and workmen inevitably clash, 
and the wages-system does not become more bearable for its fatal 
offspring, the strike. No one denies that the contract of wages is 



492 PRINCIPLES OF POLITICAL ECONOMY, 

advantageous in certain special cases ; but what is contrary to 
nature is that this form of contract should become the general 
law of present society, so that, of their own free will or not, the 
laboring masses are dispossessed of all rights over the produce 
of their labor, and are deprived of all interest in the work of pro- 
duction. Such a state of things can scarcely be regarded as 
final. We must add that the classical school will not admit this 
conclusion ; in its opinion, the wages-system constitutes a contract 
which, besides being legitimate and salutary, is also definitive. 

II. The Laws which regulate the Rate of Wages. 

Are there really any natural laws that regulate the rate of wages ? 
The search might almost seem to be an idle one ; for wages vary 
in amount from one trade to another, and from one place to 
another, and in each individual instance are determined by a 
conflict between master and man. 

But the price of a thing also varies according to the nature of 
the article, the time, and the place ; it is the result of a free strug- 
gle between buyer and seller ; yet that does not hinder us from 
investigating the laws which govern prices. 

There is no contradiction in this. No doubt, prices and wages 
are determined by agreements entered on by men ; but these 
very agreements are fixed by general causes which it is our busi- 
ness to discover. Our belief in the existence of natural laws in 
political economy must lead us to hold that men, when making 
contracts or agreements, are influenced by psychological motives 
or exterior circumstances which have a general nature and can be 
disentangled from the confused mass of particular instances. Be- 
sides, it is not accurate to say that wages, any more than prices, 
are fixed by individual agreements ; on the contrary, just as there 
is a general price for commodities, which is only shghtly affected 
by individual bargainings, so, too, there is a general rate of wages 
for every kind of labor which is as binding on employers as it is 
on their workmen. 



DISTRIBUTION. 493 

An inquiry into the laws which govern the rate of wages is, 
therefore, an investigation of the general causes which have made 
wages higher at the present day than they were half a century 
ago, and better in the United States than they are in Europe : it 
is also an attempt to forecast whether the general tendency of 
wages is to rise or to fall. 

The problem might be set in a purely abstract way, viz. What 
ought to be the rate of wages in an ideal state ? In other words, 
Given the capital and labor engaged in any business, what share 
ought to fall to each? 

Say that Robinson Crusoe furnishes Man Friday with a canoe 
and nets. As the result of his day's work Friday brings home ten 
bushels of fish. How many are to go to Crusoe (capital) ? How 
many to Friday (labor) ? In these terms the problem is insol- 
uble, but many economists have sought to find an answer. Von 
Thiinen, a German economist, tried to solve it mathematically in 
his striking book. Natural Wages. His view is that the natural 
wage is the geometrical mean between two factors. The first is 
the value consumed in the maintenance of the laborers ; the 
second is the value produced by their labor. Let a = necessaries 
and p = product ; then Wages = V«/. (See Roscher, JVat. Ok. 
Deutschland, p. 895.) 

In his Principii d^ Economia pura, M. Pantaleoni has tried his 
hand at the problem. Less ambitious than Von Thiinen, he 
confines himself to an attempt to determine two fixed limits 
between which the amount of wages falls. His method is to find 
out the advantage which each of the parties (taken as isolated^ 
might have obtained. Say that Friday by himself could have 
filled 3 baskets of fish ; that figure, 3, is the lower limit of his 
claims. Say that Crusoe by himself could have procured 3 from 
his capital. Then under no circumstances will he give Friday 
more than 7, for in that case his collaboration with Friday would 
do him no good. Friday's wages, then, will be somewhere be- 
tween 3 and 7. But, if we make the feasible supposition that 
neither Crusoe nor Friday has obtained aught by his unaided 



494 PRINCIPLES OF POLITICAL ECONOMY. 

efforts, that the value of the isolated capital, and the value of the 
isolated labor, is in each case zero, th€n the solution of the prob- 
lem is perfectly indeterminate. 

Under the present organization of economics labor is but a 
commodity which, under the name of manual labor, is bought and 
sold in the markets like any other article. More properly it is 
" hired " or " let " ; but the distinction has not that importance 
in economics which it possesses from a legal point of view. 
The price of manual labor, then, must be absolutely determined 
by the same laws as regulate the prices of other commodities. 
The complex laws which we discussed when considering value 
are summed up in the formula of supply and demand ; in brief, 
the value of things is determined by their utility and by their 
quantity. The price of manual labor, then, must depend both 
on its utility and on its rarity. Its utility means the productive 
power of manual labor in a given country at a given time, and the 
need felt for its assistance ; its quantity signifies the number of 
laborers who have only their arms to depend on, and who offer them 
in the market. This is the expression of what is, not of what ought 
to be j we shall see that a reaction has set in against this natural 
law, and that the workers are beginning to escape from it. 

Various economists have expounded three great theories, each 
of which, respectively, has endeavored to express the law of wages 
by a single formula which connects it with one only cause. That, in 
our opinion, constitutes the incompleteness of all of the theories. 
As was the case with profits, we shall be confronted by the bat- 
tling theories of the socialist school and of the optimists. 

Section i. The Theory of the Law of Brass. 

The socialist school declares that, with the present organization 
of economics, wages can never rise above the minimum explained 
above ; and that this minimum is also the maximum that wages 
can attain. The following is the line of argument. 

Manual labor, or the power of labor {Arbeitsh-aff) , is under 
present conditions merely a commodity which is sold and bought 



DISTRIBUTION. 495 

in the market in the same way and according to the same laws as 
every other commodity : workmen are the sellers ; masters are 
the buyers. Now all commodities are subject to the law that, 
wherever competition can be freely exercised, their value is 
determined by their cost of production. This is what economists 
call natural price or normal value. The commodity, manual 
labor, cannot escape this rule. Its price, therefore, that is to say, 
wages, is determined by its cost of production. To quote Las- 
salle, Bastiat-Schulze-Delitzsch (Chap. IV), "Just as the price of 
all other commodities, is the price of labor determined by the 
relations between supply and demand. But what is it that deter- 
mines the market price of each commodity, or the average rela- 
tion between the supply and demand of any article? The 
expenses necessary for their production." 

We must now learn the meaning of the words " cost of produc- 
tion " when applied to the laborer considered as a material object. 
In the case of any piece of machinery, the expenses of production 
consist (^) in the value of the coal it consumes, {f) in the sum 
that must be yearly put by to redeem it ; i.e. to replace it by 
another one when it is worn out. 

Similarly, the cost of production of labor is composed (<2) of the 
value of the food and other articles that the workman must con- 
sume in order to keep in good health, i.e. to be in a fit state to 
produce ; {b) of the redemption premium that is requisite to 
replace the laborer when he can no longer work, i.e. to rear a 
child till it is grown up. 

In brief, wages must be regulated by the value that is abso- 
lutely necessary for the support of the laborer and his family, or, 
more generally, for the subsistence and propagation of the laboring 
population. 

Such is the theory usually known as the Law of Brass. Enor- 
mous success has attended this sonorous term which was invented 
by Lassalle, and since then it has rung forth in all the manifestoes of 
the labor party as if it were a refrain of a Marseillaise of socialism. 

We must observe that though this theory was baptized and 



4g6 PRINCIPLES OF POLITICAL ECONOMY. 

brought into public notice by the collectivist school, it was first 
formulated by the classical school. Turgot was the earliest author 
of the statement that "in every kind of labor the workman's 
wages must fall to a level solely determined by the necessities of 
existence." (^Distiibution des Richesses, § VI.) Almost identical 
words were used by J. B. Say and Ricardo, and greatly have they 
been blamed for them. 

Whoever originated the idea, the name is an excellent one if 
the theory is believed to be correct ; for it burdens the working 
classes with the hardest yoke that could be conceived, and reduces 
them to a truly hopeless position. For in what way can the 
workman improve his condition? Can he hope to gain more by 
working harder and better? By no means. As his wages are 
independent of the productivity of his labor, his power of labor 
will produce only for the master who has bought it, and to whom 
alone its fruits will fall. Let him beware, then, of falling into the 
snares that will be set to induce him to make his labor more pro- 
ductive, — say the offer of work " by the job," or even a share in 
the profits. If he is victimized by these artifices, which are purely 
baits to wring from him the maximum of production, he will be 
simply playing the master's game without benefiting himself. 

But can he not trust that he will improve his position by keeping 
down his expenses and living soberly ? Again, let him beware, for 
that would make his lot the harder. Since the rate of wages is 
always on the level of the bare means of existence, as soon as the 
laborer learns to reduce them, wages will fall in like proportion. 
If the modern workman were simple enough to accustom himself 
to subsist on potatoes like the Irishman, or on a handful of rice 
like the Chinese coolie, his wages would soon be merely the sum 
that is absolutely necessary for the purchase of a few sacks of 
potatoes or bushels of rice. His frugality and his thrift would be 
turned against him, and he would be ensnared by the very virtues 
which he is exhorted to practise. 

Can he not, at least, expect something from the progress made 
in production and the increase of wealth ? No ! that would be 



DISTRIBUTION. 497 

the very worst of all for him. If scientific discoveries were to 
improve machinery, and thus lower the value of food and other 
necessary articles, his wages, which are regulated by them, would 
be decreased in the same degree. Were such progress to be made 
that an hour's labor would produce enough for one man's daily 
wants, the workman would still have to labor for twelve hours : 
in the first hour he would earn his wages, the other eleven would 
go to his employer's gain. 

This theory, which is impressive in appearance, is really a play 
upon words. If we take it literally as meaning that the workman's 
wages can never rise above what he absolutely requires to live on, 
it is obviously contradicted by facts. The purely material wants 
of animal life are, on the whole, of no very great importance for 
man. Irish peasants and French peasants, when far from towns, 
live on practically nothing. If, then, this indispensable minimum 
for the support of physical existence were to determine the 
normal rate of wages, wages would be far lower than what they 
actually are in all countries. A literal interpretation of the theory 
would not explain why the rate of wages should be higher in 
one employment than in another. Engravers and mechanical 
engineers receive twice or thrice as much as navvies. Do they 
require a greater quantity of nitrogen or carbon? Why are 
the wages of agricultural laborers lower in winter, when they 
are obliged to spend more on fires and clothing, and higher in 
summer, the very time of the year which renders Hfe so much 
easier for the poor that poets have been justified in calling it " the 
poor man's season " ? It does not explain why wages are higher 
in France than they are in Germany, or higher in the United 
States than in England ; for there is no reason why a Frenchman 
should eat more than a German, or an American more than an 
Englishman. Nor does it account for the undeniable fact that 
wages to-day are higher than they were a century ago. Do we 
eat more than our forefathers did ? 

If we discard this literal interpretation, we are told that the law 
refers not only to the minimum which is requisite for the support 



49^ PRINCIPLES OF POLITICAL ECONOMY. 

of man's physical existence, and is almost as unchangeable as his 
physical constitution, but also to the minimum which is necessary 
for the satisfaction of the complex wants of man living in a civil- 
ized environment, a minimum which varies according to the par- 
ticular degree of civilization. In this broader sense, the theory 
becomes far more probable ; but at the same time it grows far less 
appalling ; indeed, it appears to be almost too reassuring. Does 
the theory merely mean that the workman's wages are regulated by 
the habits and standard of life of the laboring classes, by the 
whole body of physical and social, natural and artificial wants 
which characterize the environment in which he has to live ? Is 
it further granted that instead of being " brazen," this minimum is 
elastic, mobile, and variable according to the race, the climate, 
and to the age, and that it ceaselessly and inevitably tends to rise 
in proportion to the increase in number and kind of the wants, 
the desires, and the requirements of civilized man ? If so, we will 
not gainsay the theory ; and with all our hearts we hope that it is a 
true one, for in that case it should be called not the Law of Brass, 
but the Golden Law of wages. But the hope is too great a one. 

If we ask the disciples of Lassalle why the wages of French day- 
laborers in rural districts, which formerly only allowed them to 
eat black bread and wear wooden clogs, have not now risen so as 
to enable them to take to white bread and use shoes as foot-gear, 
we are told, " It is the new wants and the new habits which have 
caused the rise in wages." So be it; but if they take to eating 
meat with their bread and to wearing flannel shirts under their 
waistcoats, are we to assume that their wages will rise so as to 
enable them to satisfy these new wants? If so, what a happy 
prospect they have ! Henceforth the workman's fare need not be 
adjusted to his wages ; his wages will be fixed according to what 
he eats and how he lives. Under this rosy light the Law of Brass 
has been set forth in Wealth and Progress^ a book by Mr. Gun- 
ton, an American. 

As we have previously rejected the doctrine which bases the 
value of things upon their cost of production, we should be incon- 
sistent in admitting its application to the case of manual labor. 



DISTRIBUTION. 499 

Section 2. The Theory of the Productivity of Labor. 

The opti'mistic school upholds the reverse principle that wages 
are regulated by the productivity of the workman's labor. 

The theory is quite a recent one. It was first set forth by General 
Francis Walker, the American economist, in his book on The Wages 
Question, and was adopted by Stanley Jevons. It also obtained 
the support of three of the author's colleagues, MM. Beauregard, 
Chevallier, and Villey, in three works on wages, which they simul- 
taneously published, and all of which were crowned by the Insti- 
tute of France. 

The workman is never tired of demanding " the whole of the 
product of his labor," the phrase which forms part of the platform 
of the labor party. Such a claim would only be justified if the 
laborer himself had supplied all the elements of production, not 
manual labor alone, but also the raw material and the implements 
which the autonomous producer does provide. Under the wages 
system these conditions are not fulfilled. Once at a pubHc meet- 
ing a workman shouted out the vulgar but vivid phrase, '^ The man 
who makes the soup should eat it ! " Quite correct ; but is it the 
workman who has made the soup ? No ! it is the employer who 
has provided the kettle, i.e. the instrument ; and the ox which 
gives the beef, i.e. the raw material ; and none but he sets the pot 
boiling. Thus the workman's claim to have all the soup for him- 
self, to obtain the whole of the produce of his labor, is utterly 
unreasonable under present economic conditions. 

The present theory, however, does not assert that wages will be 
equal to the entire value produced by the workman's labor ; for 
in that case the employer would gain nothing, would doubtless 
lose, and would therefore abstain from business. It merely holds 
that the workman receives in the form of wages all that remains 
of the entire product after a deduction has been made of all the 
shares which are due to the other collaborators, e.g. after a deduc- 
tion of the interest on the capital which he does not supply, and 
of the insurance premium against the risks which he does not bear. 



500 PRINCIPLES OF POLITICAL ECONOMY. 

According to this theory, the value of labor cannot be likened to 
the value of a commodity, which is subjected solely to the law of 
supply and demand as regulated by competition. It is granted 
that the laborer is an instrument of production, but it is added 
that the value of an instrument of production depends on its 
productivity. When a capitalist hires a piece of land, is not the 
rent which he has to pay calculated according to the productivity 
of the land ? When he hires labor, then, why should not the rate 
of wages be in proportion to the production of that labor? 

If this theory is a sound one, it should be as encouraging as the 
Brazen Law is discouraging. For if the rate of wages depends on 
the productivity of the workman's wages, his destiny can be carved 
by his own hands. The more he produces, the more he will 
gain; his wages will infallibly be increased by everything that 
tends to increase and improve his productive activity ; viz. physi- 
cal development, moral virtues, technical education, inventions, 
and machinery. 

In fine, the results of the contract of wages would be even more 
advantageous than those of actual partnership or profit-sharing, 
for the workman, and none but he, would profit by the entire 
increase of the productivity of labor ; he would literally receive the 
whole of the produce of his labor, after the natural subtraction 
of interest on the capital which he does not supply, and of the 
insurance premium against the risks for which he is not liable. 
This harmonizes with Stanley Jevons's statement, that the laborer's 
wages always ultimately coincide with the product of his labor, 
after a deduction has been made of rent, taxes, and interest. 

The bare enumeration of these consequences shows us in what 
measure the theory is in opposition to actual facts. We have 
already granted that the productivity of labor influences the rate 
of wages ; for by increasing the general wealth of a country it 
swells the whole mass which is to be divided, and thus comes to 
augment the respective portion due to each of the sharers, in 
whom workmen are included. It further affects the rate of wages ; 
for as soon as labor is more productive, the demand for it should 



DISTRIBUTION. 5OI 

increase. But one of the most essential elements is left out of 
account, — the abundance or scarcity of manual labor, the effect 
of which is usually the most powerful of all. It is not probable 
that the productivity of labor in the United States is smaller now 
than it was twenty years ago ; but in that country the rate of 
wages has perceptibly fallen, for the proletariat class has been 
largely added to, both by the immigration of foreign laborers and 
by the appropriation of the available land. 

Section 3. The Theory of the Wages-Fund. 

For many years this was the classical theory, especially in the 
opinion of English economists ; but it is now beginning to be 
abandoned. Like the Brazen Law, it starts from the principle 
that the price of manual labor, that is to say, wages, is determined 
by the law of supply and demand, and these two factors it defines 
in the following terms. The supply is furnished by the workmen, 
the poorer classes, who seek for work whereby to earn their living, 
and offer the use of their arms for that purpose. The demand 
is composed of capitalists who need investments ; for the only 
mode of employing capital productively is to devote it to the 
supplying of work to workmen. The ratio between these two 
elements will determine the rate of wages. 

In Cobden's picturesque and often quoted formula the law 
means that " whenever two workmen run after one master, wages 
fall ; whenever two masters run after one workman, wages rise." 
When couched in these terms the theory may be regarded as 
irrefutable, and virtually differs little from our own account of the 
matter. 

But the theory has been damaged by an attempt to ascribe to 
it an exactness which it does not possess, and to convert the law 
of wages into an arithmetical process. 

Take the circulating capital of a country, or the wages-fund, as 
the English term it, because they hold that its purpose is to sup- 
port the laborers during the course of their labor. Then take the 
number of laborers. Divide the first figure by the second, and 



502 PRINCIPLES OF POLITICAL ECONOMY. 

the quotient will instantly give the sum total of wages. Let 
;£"400,ooo,ooo be the circulating capital, and 10,000,000 be the 
number of the laborers, say in France, and the yearly average 
wages will be ;£^40. 

This theory clearly demands that wages can vary only as one of 
the two factors varies. Therefore a rise in wages is possible only 
in the two following cases : — 

Firstly. If the wages-fimd — i.e. the mass to be distributed, 
the dividend — happens to increase, and nothing but saving can 
increase it. 

Secondly. If the laboring population, i.e. the divisor, diminishes. 
Now it can only diminish in proportion as the workmen apply the 
principles of Malthus, and either abstain from marriage or have 
few children. The conclusion drawn by John Stuart Mill, the 
ablest exponent of the doctrine of the wages-fund, was that the 
only safeguard for wages-earners was a restriction of the increase 
in population. 

In this shape the theory is hardly more encouraging for the 
working classes than was the Law of Brass, and it practically 
amounts to the same result. In its opinion, the divisor (the num- 
ber of the working classes) must increase far more rapidly than 
the dividend (the amount of capital available) ; whence it follows 
that the quotient (wages) must tend to diminish, till it has fallen 
to the minimum, beneath which it cannot descend. The reason 
for this is, that the production of children is a far easier matter 
than the production of capital. The latter presupposes abstinence ; 
the former implies the reverse. Population is multiplied sponta- 
neously ; capital is not. 

This doctrine of the wages-fund is bound up with a conception 
of capital, with which we have previously disagreed. Every 
human society is supposed to possess a species of provision store, 
from which we can draw at will for the support of the laborers ; 
hence it is inferred that wages can be paid only out of the produce 
oi past labor, and never out of the produce oi future labor. As a 
matter of fact, what labor produces daily is enough to support labor. 



DISTRIBUTION. 5O3 

We must also note that the professed exactness of the theory 
is altogether deceptive. In this arithmetical sum which we are 
asked to solve, the three terms of the problem are three un- 
knowns ; in the division we have to perform, the dividend, as well 
as the divisor, is represented by x. How, then, can we find the 
quotient ? 

The following is the real statement of the case : the dividend 
is not the amount of capital in the country, which could be calcu- 
lated, if need be ; but it is merely that portion of their capital 
which employers wish to spend in manual labor. The divisor is 
not represented by the total population of the country ; it is com- 
posed of those laborers who have to hire out the use of their 
arms, and from these we have to deduct all autonomous producers, 
who may be very numerous. Thus, on a nearer view, the theory 
is resolved into this : the rate of wages can be obtained by dividing 
the whole sum distributed in wages by the number of those who 
receive wages. There was no necessity to prove that. 

III. The Rise in Wages. 

The gradual rise in wages, especially for the last half-century, is 
an indisputable fact. Millions of statistical observations, which 
have been collected in all European countries, justify the conclu- 
sion that in this space of time agricultural wages have about 
doubled, and that wages paid in manufactures have increased by 
two-thirds, or thereabouts. 

For this conclusion to have any real value it should be corrobo- 
rated by a mass of figures, inasmuch as nothing is proved by a 
few separate figures, which may have been arbitrarily chosen. 
The requisite tables cannot be given here, but in La Main-d^oeuvre 
ef son prix, a book from the pen of M. Beauregard, Professor in 
the Faculty of Law of the University of Paris, they may be found, 
together with a mass of substantiating evidence. A general view 
of the subject will be obtained from the table prepared by M. de 
Foville, which we here subjoin. The income of a family of French 



504 PRINCIPLES OF POLITICAL ECONOMY. 

agricultural laborers for a century past is thus set forth by M. de 
Foville : — 

1788 ;^8 1852 ;^22 

1813 16 1862 '. 28 i6j. 

1840 20 1872 32 

The rise has been much greater in the rural districts than in the 
towns, and in the provinces than in the capital ; this is explained 
by the constant emigration from the country into the towns, and 
from the provinces to the capital. 

Now, what are we to infer from this rise? According to the 
optimistic school, the improvement in the condition of the work- 
ing classes is certain, considerable, and indefinite ; further, it is 
spontaneously effected, and therefore, in the interests of the work- 
men themselves, the only policy is one of laisser /aire. 

This view of the matter is not shared by the socialists, their 
leading principle being that under the present economic organiza- 
tion the rich always become richer, and the poor never cease to 
grow poorer. They cannot deny the material fact of the rise in 
wages, for it is incapable of denial ; but they assert that it proves 
nothing as regards the improvement of the lot of the working 
classes, and rest their case on the following reasons : 

Firstly. The rise in wages is nominal, and not actual ; it is 
merely an optical illusion occasioned by the depreciation of the 
value of money. If, during the last half century, money has lost 
half its value, how does the laborer gain by receiving as his wages 
a florin instead of a shilling? He is no better off for that. 

There is some truth in this assertion. It is a fact that money 
has lost a portion of its value, especially since the discovery of the 
Australian and Californian gold-fields, in the year 1850 and there- 
abouts ; this fall in value of the monetary standard has caused a 
general rise in prices, and consequently an income of £^0 at the 
present day does not give double the ease and comfort which 
£^0 yielded in 1850. We must now see whether this deprecia- 
tion of the value of the money, or, what is the same thing, the 
general rise in prices, has been equal to the general rise in wages. 



DISTRIBUTION. 505 

Nov/ it is perfectly certain that prices have not doubled ; their 
average increase has not even been two-thirds ; the depreciation 
of money is usually calculated to be a third at the very outside. 
Therefore fhe workman who now receives £^0, or only ;^67, 
instead of the -£<\o he was paid forty years ago, enjoys an 
income which is not only larger in terms of money, but is also a 
more powerful instrument of purchase and of consumption. The 
rise in wages, though partly nominal, is also partly real. 

For a more accurate estimate of the improvement in general 
welfare that this increase in wages represents, we ought to analyze 
the workman's expenses, and examine what rise in price has 
been sustained by each of the principal articles in his budget. 
More than once already this task has been carefully performed, 
and the result shows a clear rise. Food, such as meat, vegeta- 
bles, wine, butter, and so forth, has largely increased in price, 
indeed, has more than doubled ; house rent has grown in even 
higher proportions ; and these two are very important items. But 
bread, which is the principal article in the budget, is not percepti- 
bly dearer ; manufactured goods, such as clothes, are considerably 
cheaper ; and there is a further decrease under the headings of 
transport, intercommunication, and education. 

Secondly. The sociahsts add : Even admitting that the rise in 
wages is partly real, in any case it is not in proportion to the 
development of the general wealth, and to the increase of the 
incomes of the other classes of society. Let us suppose that fifty 
years ago the whole sum to be divided between the propertied classes 
and the proletariat was ^400,000,000 sterling, or;^200,ooo,ooo for 
each. Yet the total, now, has risen to ;j^8oo,ooo,ooo, - — the proleta- 
riat receiving^28o,ooo,ooo, and the monied classes, ^5 20,000,000. 
Then the rise in wages, though real, would not mean an actual rise 
in condition; for though the wages-earners' share would have 
increased by 40 per cent, the share of the other classes would 
have risen 160 per cent, or four times more. The wages-earners 
would be better off, but they would not feel richer ; for it must 
not be forgotten that wealth is purely relative, and such is man's 



506 PRINCIPLES OF POLITICAL ECONOMY. 

nature that comfort itself is regarded as misery, if it is contrasted 
with the opulence of one's neighbors. 

This argument against the present social order is perhaps one 
of the strongest that the socialists keep in their armory; for, from 
the standpoint of social justice, the workers have a right not only 
to some improvement of their condition, but also to an increase 
of income at least equal to that gained by the other classes of 
society. As a matter of fact, this equal increase has not been 
made. If we look at the official list of the property transmitted 
in France by inheritance or donation, we find that the figures 
which were 2,509,000,000 francs in 1835, and 3,133,000,000 
francs in 1856, rose, in 1885, to 6,429,000,000, though in 1888 
there was a slight fall to 6,330,000,000. As the yearly income was 
clearly in proportion to the entire sum, we may lay down that the 
total of all private fortunes has been more than trebled in fifty 
years, and more than doubled in thirty years. This increase is 
certainly far higher than the increase of wages ; for that, to take the 
most optimistic calculations, does not exceed 66 or 100 per cent. 

IV. Whether there are any Means of improving the 
Condition of the Wages-Earners. 

There are three ways by which an attempt can be made to 
improve the condition of the wages-earners, and each of them 
has been extolled by its particular school. 

There is the stfike^ or the conflict between workmen and 
employers. 

There is the law, or State interference. 

There is co-operation, either between the master and his men, 
or between the workmen themselves. 

Before we examine these modes, we should ask whether their 
efficacy can be depended on. 

The more rigid members of the Liberal school disbelieve in the 
efficacy of any of them. As in their opinion the rate of wages 
is determiued by natural laws, it cannot be influenced by any 



DISTRIBUTION. 50/ 

artificial cause. To hold that wages can be made to rise by a 
combination of workmen, by a chapter of law, or by any form of 
association, is as absurd as to believe that fine weather can be 
caused by pushing forward the needle of the barometer with one's 
finger. If wages ever rise after a strike, that is because they 
were bound to rise in any case. The strike has only been the 
light tap on the glass of the barometer that stirs the always slug- 
gish needle to follow the movement of the mercury, and to assume 
more quickly its position of equilibrium. In fact, if the rate of 
wages is to rise at all, it will do so spontaneously ; if it has no 
inclination to rise, it cannot be forced up. In all normal societies 
the tendency is to rise. All that can be done is to aid this evolu- 
tion by giving freer play to the forces which have acted hitherto ; 
viz. competition and freedom of contract. This might be effected 
by the formation of the Labor Exchanges proposed by M. de 
Molinari, in which the supply of and demand for manual labor 
from all parts might be brought into touch, and from which labor 
might obtain a mobility equal to that possessed by capital. 

This tranquil mode of philosophizing has discredited the Liberal 
school more than anything else has, and it is justified neither by 
observation of facts nor by scientific reasoning. 

In reality, it is beyond question that the workman's condition 
has been greatly improved by strikes, or fears of strikes, or the 
formation of powerful bodies tending towards that end : this is 
decisively proved by the history of the laboring classes in Eng- 
land for the last fifty years. Further, it is beyond dispute that 
State interference has brought about the same result in all coun- 
tries, in Germany in particular. Although profit-sharing and co- 
operation have not yet borne much fruit, still the progress made 
allows us to count on their efiicacy. 

As far as theory goes, we freely acknowledge that the rate of 
wages is determined by natural laws, — in a word, by the law of 
supply and demand ; but that does not negative its possible modi- 
fication by the will of man as excited by combination, co-opera- 
tion, or State interference. To return to the figure used above, 



508 PRINCIPLES OF POLITICAL ECONOMY. 

it would be ridiculous to profess to alter the movements of the 
barometer by pushing the needle with the finger ; but it is per- 
fectly legitimate and scientific to assert that it can be altered by 
a modification of its atmospheric surroundings, say by carrying 
it up a mountain or by putting it under the influence of a pneu- 
matic engine. Similarly we can lawfully attempt to modify the 
condition of wages-earners by effecting changes in their economic 
environment, and by acting on the causes which sometimes depress 
and sometimes elevate the rate of wages. 

Besides, even if the price of manual labor is, like the price of 
every other article, determined by the law of supply and demand, 
that does not prove that this state of things is normal ; on the 
contrary, it is abnormal, — we might even say, against nature. It is 
not natural that human labor, which is the agent in all production, 
should be merely a commodity which is quoted on the market 
and is subject to the same variations in price as are experienced 
by cottons and by coals. There is a reaction against this state of 
things, — a reaction in which the workmen are supported by public 
opinion and by law. They now claim to be treated not as thmgs, 
but as men ; they demand not the price which the state of the 
market assigns for a bale, but the share which justice apportions 
to a collaborator or joint worker in the labors carried on by society 
as a whole. They therefore ask the other sharers to draw a little 
closer together and give them room. This idea that the wages- 
system should be a partnership — even though its outward forms 
should remain as they are — cannot but profoundly influence the 
nature of the contract of wages, and, consequently, the rate of 
wages. 

No doubt this rise in wages cannot be boundless, and its limits 
will be somewhat narrow, if we are to suppose that the produc- 
tion of wealth remains the same as it now is. We may simply 
in passing throw out the suggestion that perhaps a general rise of 
wages would enable the workman to make progress on all lines, 
and that consequently the productivity of labor, and therefore the 
amount to be shared, might both be increased. 



DISTRIBUTION. 



509 



If the whole amount to be divided is not augmented, a rise in 
wages can only be brought about by a reduction of profits ; if, 
then, we consider how greatly profits are diminished by competi- 
tion, and agree that the employer must be allowed to retain 
enough to recompense him for his risks, remunerate him for his 
labor, and pay the interest on his capital, we shall have to confess 
that the margin is somewhat narrow. 

Certainly, wages can rise without involving any diminution in 
profits, if only the price of the products is raised in proportion. 
That is what manufacturers naturally strive to do, for then the 
public has to pay for the increase in wages which they have been 
obliged to grant. But this rise in prices is borne by the con- 
sumer, and ultimately, perhaps, by the wages-earners, who form 
the bulk of consumers. 

V. Strikes. 

To strike is for men to concert together and refuse to continue 
work ; a strike, therefore, presupposes a prior understanding, i.e, 
combination. This right of combination has been only very 
recently recognized in various countries ; in France by the law of 
1864. In right, its legitimacy should be beyond dispute; for 
if we grant that labor is a commodity like any other article, every 
man -should be free to refuse to surrender his commodity except 
on the conditions which satisfy him. 

Strikes are a mode of warfare, and therefore share the disad- 
vantages of war. They entail an enormous waste of productive 
force ; — the statistical department of the United States' Labor 
Bureau calculates that the losses caused by strikes and lockouts 
during the six years, 1881-1886, amounted to ^98,000,000; — 
they cause great sufferings, and leave to rankle in the hearts of the 
vanquished (be they workmen or employers) resentment which 
prepares the way for future conflicts. But it cannot be denied 
that this violent method has helped to bring up the rate of 
wages by compelling masters to give their men a larger share. 



510 PRINCIPLES OF POLITICAL ECONOMY. 

The efficacy of strikes must not be gauged from the statistics of 
those which have succeeded or have failed. One successful strike 
may raise wages in a host of industries ; and moreover, the ever- 
present fear of a strike does more to raise the rate of wages than 
even an actual strike. We must observe that the success of a 
strike, just as the favorable issue of a war, demands previous 
preparation by a powerful organization. An accidental and tem- 
porary combination is not enough. Permanent and strong asso- 
ciations are needed, so that their method of action may be the 
threat of a strike, rather than a definite strike. The more power- 
ful these bodies are, and the easier their formation, the fewer 
strikes there will be ; just as war in Europe is largely prevented 
by the great armies kept up by every State. Thus the English 
Trade-Unions (which correspond to the chambres syndicales 
d^ouvriej's in France) have become a power in the country, and 
have greatly improved the condition of the working classes. 

The trade-unions are very wealthy and have many thousand 
members (the num'bers of the Amalgamated Society of Working 
Engineers rising to 60,000) ; ^ they are directed by prudent and 
distinguished men, some of whom have been returned to the 
House of Commons, and their great Annual Congresses excite 
much interest. Up to the present, their influence has not been 
diverted into sociaHstic directions, but has been devoted to the 
more practical aim of an increase in wages or a diminution of 
the length of the working day. However, their methods have 
not always been of the most intelligent kind. They have shown 
moderation in their use of the formidable weapon, strikes ; but, 
being full of the idea that the price of manual labor depends solely 
on its scarcity, and failing to take into account the question of 
its productivity, they have striven to restrict the supply of manual 
labor in every possible way, by limiting the number of apprentices, 
by forbidding piece-work, and by discountenancing natural ways 
of developing the workman's power of labor. By thus closing 

1 In 1890, the number was 65,210. See official Report of Twenty-third 
Annual Trades-Union Congress (published at Manchester, 1890). — J, B. 



DISTRIBUTION. 5 II 

their ranks they have turned their members into a sort of aris- 
tocracy of labor ; but this has ahenated from them the working 
masses who^e occupations require no period of apprenticeship, in 
fact, the class of unskilled laborers.-^ The latter, therefore, have 
become more and more accessible to socialistic teaching, in pro- 
portion to the growing conservatism of the Trade-Unions. (See 
Professor Brentano's article on the working classes in England 
in the Revue d^ Economie politique for July-August, 1890.) 

The United States also possesses trade-unions, but besides these 
there is the well-known organization of the Knights of Labor, 
which admits all unskilled laborers. 

In France the chambres syndicales d'ouvriers (workmen's unions) 
are far less well organized, and most of them are composed of a 
very minute portion of the respective trades. Unfortunately, they 
make up for this paucity of numbers by a strong tendency to 
violence ; and, the organization being weak, the working classes 
do not derive much benefit therefrom. Their masters generally 
refuse to deal with these bodies, and prevent their men from 
joining them. This is a mistaken action ; for, were these unions to 
embrace all the laboring classes, their aims would become far 
more practical. Still we cannot agree with the measure lately 
passed by the French Chamber of Deputies, which would oblige 
employers, whether they will or no, to keep workmen who have 
joined these unions. 

The efficacy of these fighting bodies arises from the fact that 
the workman who joins them holds a much stronger position as 
regards his employer. Under ordinary conditions, when a workman 
treats single-handed With.- sen employer, the following reasons prac- 
tically compel him to accept the price offered him : — 

Fii'stly. The capitalist can wait ; but the workman cannot, for 
he is in the position of a trader who is absolutely obliged to sell 

1 It is difficult to maintain this in face of the fact that the list of trades' 
societies represented at the Congress in 1890 included the three unions of 
Dock -laborers, together numbering more than 160,000 members. — J. B. 



512 PRINCIPLES OF POLITICAL ECONOMY. 

his goods in order to get a livelihood. In this case the com- 
modity is manual labor. 

Secondly. The employer can usually do without a particular 
isolated workman ; but the converse is not equally true. Another 
workman can always be found ; he can be brought from another 
district, or from abroad, if need be ; nay, machinery can be intro- 
duced in his stead. A fresh master cannot be found with the 
same ease ; he cannot be imported by rail or by steamer ; nor can 
a machine be put to do his work. 

Thirdly. The employer is better acquainted with the state of 
the market. He looks further ahead, and from a commanding 
position. 

But, as soon as our workman has joined together with his fel- 
lows in the same trade and has formed a union, the positions are 
equalized. 

Firstly. The workman is enabled to refuse to give his labor, 
and can be supported meantime by the funds of the society and 
the contributions of the members. 

Secondly. All the men in one factory become banded together, 
and the master has to deal with all, instead of with only one. 

Thirdly. The union starts intelligence-offices, and obtains com- 
petent and experienced managers, who are as well acquainted with 
the current state of affairs as the masters themselves. Hence, the 
society is prevented from making false moves. 

VI. State Interference. 

State interference for the improvement of the condition of the 
working classes can be carried on in many different ways. 

Section i. The most radical measure — the demand of the 
militant labor party — is to fix a minimicm wage. In our opinion 
the proposal is somewhat absurd. It is not enough for workmen 
to be guaranteed this minimum wage ; they must also be assured 
of finding masters who will employ them at that price. Now, no 
power under heaven can force a capitalist to employ laborers if 



DISTRIBUTION. 513 

he does not derive sufficient profit therefrom. In spite of the 
repeated demands of the labor party, this experiment of fixing a 
minimum wa,ge has not yet been made ; but history shows us that 
law has several times exercised its authority and fixed a maximum 
wage. Still more frequently the State has interfered and fixed a 
maximum price for some commodity or other (a bread-tax still 
exists in certain places) . But the lack of success of these various 
legislative measures enables us to conclude a fortiori that the 
legislator is powerless to fix the price of manual labor. 

Section 2. There is a large collection of legislative proposals 
which do not touch the wages-system itself, and do not even profess 
to change the rate of wages. The end in view is to improve the 
condition of the wages-earners, either by duly limiting the dura- 
tion of their labor, or by guarding them against the grievous 
eventualities which may proceed from their position. These meas- 
ures are now being brought to the fore in all the parliaments of 
Europe, under the name of labor legislation. The Hmits of this 
book must restrict us to an enumeration of them. 

Five risks hang over the head of the wages-earner; three of 
them he shares with the rest of mankind : namely, illness, old age, 
and death ; but two arise out of his peculiar circumstances, — lia- 
bility to accidents and enforced loss of work. By all these he is 
rendered incapable (either permanendy or temporarily) of work- 
ing, and consequently of earning daily bread for himself and 
family. Through any of these risks the man of the proletariat, 
or those he leaves behind him, may be thrown into the ranks of 
pauperism, or even of crime. Setting aside, then, all considera- 
tions of justice, it is a social interest of the highest importance to 
guard against or mitigate the consequences of these risks. Now 
is individual initiative, when taking the shape of saving and of 
association, capable of meeting these dangers, or must we fall 
back on State interference ? To our mind saving, and especially 
the poor man's saving, is not enough. 

Still, the risk of illness can be sufficiently provided for by the 
formation of benefit societies. With the aid of a very small sub- 



514 PRINCIPLES OF POLITICAL ECONOMY. 

scription, which does not usually amount to more than a shilling 
a month, these institutions are able to meet the expenses of doc- 
tors and dispensers and to grant a certain allowance for each day 
of sickness. There are large numbers of these benefit societies 
in all countries, particularly in France, and they are generally 
favored by law with certain privileges, which cannot be dealt 
with now. 

The premium of insurance against accidents is not much higher, 
but the workman would scarcely be inclined to pay it, even if he 
had the necessary funds ; for not very many even of the cultured 
classes are prudent enough to insure their limbs or lives against 
accidents. 

Insurance against old age, that is to say, the accumulation of 
sufficient capital to yield an annuity after the age of sixty or sev- 
enty-five, entails sacrifices which a laboring man's means are 
totally unable to support. The same may be said of the two 
other dangers, death and enforced idleness. 

It might be legitimately urged that some of these risks, especially 
injuries through accidents and old age, ought to be provided for 
by the master. As a matter of fact, some employers, especially 
large limited liability companies, have voluntarily organized com- 
pensation funds against accident, and superannuation funds for 
the aged. They bear the whole or most of the expenses of these, 
and the workmen have only to pay a small share, which is withheld 
from their wages. 

But this generous private action of certain masters has not 
found many imitators, either through want of sympathy or through 
lack of means, for the successful working of such institutions re- 
quires a large staff and a considerable amount of capital. 

According to the French law, the employer is only strictly liable 
for accidents which the workman has proved to be the former's 
fault ; this obligation of proof has made the workman's right 
practically invalid. But present public opinion now holds that 
the position should be reversed, and that the employer should 
always be held liable unless the accident is proved to have arisen 



DISTRIBUTION. 515 

from the carelessness or recklessness of the workman. It will be 
seen that the German laws, presently to be spoken of, go so far 
as always to put the risk upon the master, who is regarded to be 
as much liable for any deterioration of his staff as he is for deteri- 
oration of his plant, both of these entering into the general ex- 
penses of manufacture. This is called the theory of " professional 
risk." The object of such a proviso is to put a stop to the numer- 
ous law cases in which one side tries to throw the blame on the 
other side. Similarly, with a view to avoid all controversy as to 
compensation that has been fixed, once for all, as two-thirds of the 
wages. Were the French law equally severe on this point, em- 
ployers would speedily band together in insurance societies for the 
purpose of guarding against the expenses of such liabilities. That 
might be the best solution. 

The insufficiency of, or disinclination to, private action as to 
these questions has made men ask whether the State is not bound 
to interfere to guarantee the laboring classes against these risks, 
even as a measure of good administration ; for the smallest of 
these risks can plunge the working man into misery, and the class 
composed of the wretchedly poor is at one and the same time a 
danger and an expense to society. 

These considerations have induced the German government to 
promulgate a body of laws ^ which, in spite of the conflicting opin- 
ions as to their virtue, are the legislative event of late years. We 
have already referred to a portion of the scheme. The whole is 
a gigantic system of insurance against sickness, accidents, and old 
age, which is to procure the compulsory entrance of all masters 
and men, both in manufacture and in agriculture, into huge indus- 
trial and district corporations. The expenses of insurance against 
accidents are to be borne entirely by employers ; insurance against 
illness falls one-third to the masters and two-thirds to the men ; 

1 The Act of 1883 established compulsory insurance against sickness, of 
1884 against accident, and of 1889 compulsory provision for old age. See e.g. 
Professor Taussig's graphic sketch of all three in the Forw7i for October, 
1889.— J. B. 



5l6 PRINCIPLES OF POLITICAL ECONOMY. 

insurance against old age and infirmities incapacitating from work 
is to be divided equally between employer and employed. When- 
ever the expenses are very large, the State comes to the aid of 
both parties, and promises to grant ^2 10s. (50 marks) a year to 
each superannuated person. It is still too early to judge of the 
value and useful results of this huge mechanism. In spite of its 
extraordinary complication, it will remain as a legislative monu- 
ment of our era, and as the boldest experiment of State socialism 
which has yet been tried. 

In France there has been since 1850 a State-established Na- 
tional Superannuation and Insurance Office, which gives workmen 
rather better terms than are granted by ordinary insurance com- 
panies ; but it has not been much used. Latterly various bills 
have been proposed, to form superannuation funds for the aged, 
after the German system. 

But association and insurance are not capable of exorcising that 
lack of work which present-day economic evolution brings upon 
us again and again with almost fatal periodicity. Unhke the other 
risks we have enumerated, this danger does not attack mere indi- 
viduals ; it assails in large bodies all the men in one factory, all 
the workers in one trade, sometimes, too, all the industries in a 
country ! No doubt the workingman can subsist for a brief space 
by eating up his small savings, if he has made any, or by pledging 
at the Mont-de-Piete the few movable goods he may possess ; but 
these are scanty resources. We may note that the French Monts- 
de-Piete are in a way the equivalent of the pawn-shop, as they lend 
money on pledged articles. Though they are philanthropic insti- 
tutions which are not worked for a profit, they are obliged by the 
very onerous nature of their business to lend at a very high rate 
of interest. 

Now, can the State do aught to guarantee the workman against 
the risk of losing all employment ? This was once believed to be 
possible, and the government was urged to aid all men out of work 
by guaranteeing them the Right to Labor. This claim made a 
great stir during the French Revolution of 1 848 ; and to meet this 



DISTRIBUTION. 517 

demand were formed those '^ National Workshops" in the Champ- 
de-Mars which provoked the sanguinary insurrection of the Days 
of June. This right is now somewhat out of fashion. It is certain 
that the State has not the power to assure to each man a special 
kind of work, — the work which suits him best, and least of all a 
productive form of labor, — unless, indeed, it turns itself into the 
universal employer in all industries, — in other words, steps boldly 
upon the path of collectivism. Indeed, men have scarcely yet 
come to recognize that the right to labor is anything more than a 
form of public relief. We shall return to this subject. 

Section 3. The State can attempt to improve the condition of 
the wage-earning classes, not by interfering with wages, but by 
reducing the duration of labor. This question has of late years 
given rise to quite a separate economic Hterature of its own. 

The Liberal school only admits limitation of labor as far as 
regards children, for they are minors and are unable to assert and 
defend their own rights themselves. There is no disagreement 
on this point ; and the laws of all countries in Europe, save for 
a few scandalous exceptions, prohibit children from working in 
factories till they have reached a certain age ; but the hmit of age 
varies. In France, at present, it is twelve years, which is too 
low j but a bill, which has not yet passed, will probably raise it to 
thirteen. 

The application of this restriction to men, and even to women, 
the Liberal school refuses to grant. In its opinion, men and 
women alike are the best judges of the use they ought to make of 
their time, and it would be a great disservice to prevent them 
working when they please, since their labor constitutes their liveli- 
hood. Society, too, would be injured ; for to limit labor would 
diminish the production of wealth. 

All the other schools, not only the socialists, properly so-called, 
but also the socialists of the Chair and the Catholic school, hold 
that the legislator has the right, and ought, to interfere, even in 
the case of men. The line of argument is that freedom of contract 
as applied to wages is nominal and not real. A workman labors 



5l8 PRINCIPLES OF POLITICAL ECONOMY. 

twelve hours a day, not because he wants to do so, but because he 
cannot help himself. Further, a limitation of the hours of labor 
would not diminish the production of wealth, and, even if generally- 
adopted, would not reduce wages. Nay, if it did lower wages, it 
would be better for workingmen to have smaller incomes and less 
deadening work. 

This assertion that wages would not be reduced may sound 
paradoxical, but it is the logical consequence of all the great theories 
we have examined. Socialists who hold that the rate of wages is 
always determined by the cost of maintenance of the laboring-man 
and his family, have no difficulty in showing that the number of 
hours he works cannot influence the rate of wages in the least. Nor 
can those who base wages on the law of supply and demand 
think that the limitation of the hours of labor can lower the rate 
of wages, for its effect would be to make manual labor scarce. 
With the length of the working-day reduced by a tenth, eleven 
men would have to be employed in the place of ten. Again, 
those who beheve that the productivity of labor is the sole 
regulator of the rate of wages, can still think that to reduce the 
hours of labor will not reduce wages, for experience shows that a 
man works far better when he is not overworked, and that the 
greater intensity of the labor amply compensates for the shorter 
time spent over it. This is shown in England and the United 
States, where the working- day is the shortest and labor is the 
most productive. 

However, it must be admitted that the economic solidarity of 
the present day, or rather the keen competition between nation 
and nation, would make it difficult for any one country to limit 
the length of its working-day without falling into a position of 
dangerous inferiority. For this reason a general agreement be- 
tween all civilized countries has appeared to be desirable, but the 
problem would thereby become international and none the more 
easy to solve. In April, 1890, an international conference on the 
matter was held at Berlin, and in this all the European countries 
took part. A number of resolutions were formulated ; but until 



DISTRIBUTION. ^ig 

further steps are taken these will remain in the state of abstract 
resolutions. 

For the restriction of the hours of work for women, the argu- 
ments are Very strong indeed. Female labor in the workshop 
practically destroys the home ; it causes mothers to neglect their 
children, and often drives the girls and younger women upon the 
streets. This compulsory neglect of children, if of early years, 
necessarily involves artificial rearing, and, with that, an appalling 
mortahty of infants, — more than sixty per cent of those in their 
first year. The welfare of the community is therefore at stake. 
To remedy this frightful blot, creches (or common nurseries) have 
been established ; these are private institutions which take in chil- 
dren whose mothers have to leave them, and tend them on hygienic 
principles. 

Several countries have begun to restrict the hours of labor. In 
Switzerland and in Austria the working-day for men has of late 
been fixed at eleven hours. In France there is an unrepealed law 
dating from 1848 which assigns twelve hours as the limit; but 
this measure is a dead letter. Though women are not prohibited 
to labor and the hours are not limited, still the laws usually forbid 
them to work at night-time, in mines, or for a reasonable period 
before and after childbirth. Till lately, the restriction as to work 
in mines was the only one which obtained in France ; but a recent 
measure aims at further restrictions. 

VII. Co-operation. 

The third mode of improving the condition of the wages-earning 
classes is association, — either the partnership between the employer 
and his workmen which is called profit-sharing, or partnership of 
workmen among themselves in the form of producers'' co-opei^ative 
societies. 

Up to the present moment this has been the least fruitful in 
results of the three methods we have indicated above ; but none 
the less it is the one In which we ought to put most trust. It 



520 PRINCIPLES OF POLITICAL ECONOMY. 

is as superior to the method of strikes as peace is to war ; it is 
better than State interference in the same way as liberty is better 
than coercion. 

Section i. Profit-Sharing. 

This, as we have said, tends to modify the wages-system by 
putting in its stead association between employer and employed. 
Association we have already recognized to be, theoretically, the 
most perfect form of productive enterprise, and the removal of 
the practical difficulties which we have also granted is the aim 
of profit-sharing. 

This method is thoroughly French in origin. It was first prac- 
tised in 1842 by a house-painter named Leclaire. The measure 
of success he obtained has never been equalled since then ; but it 
can be explained by the special conditions of the founder's calling. 
The plan is now employed in at least 250 business houses; and 
nearly all these experiments have turned to the advantage of the 
masters as well as of the men.^ 

However, in most of these cases the profit-sharing has not been 
an actual partnership ; the difi"erences lie in the following features : 
The workmen are always Hable to be discharged by the employer ; 
in no wise do they take part in the management ; they do not bear 
any of the losses ; finally, they are paid in ordinary wages, and the 
share they receive from the profits is treated merely as a supple- 
ment, a " condiment " (or rehsh in the food), as M. Leroy-Beaulieu 
calls it ; indeed, in some cases it is only a gratuity or present, 
which the employer fixes as he wills. Further, the amounts which 
the workmen receive from this system may be apportioned in 
different ways. They may be calculated according to the profits 

1 A British Government return, drawn up by Mr. J. L. Whittle of the 
Patent Office and published in March, 1891, gives figures and facts about the 
leading cases of profit-sharing in Europe and the United States. The details 
given of the system of Laroche Joubert's Paper Manufactory are especially 
valuable. (Report to Board of Trade on Profit-Sharing, 1891, C. 6267.) — 
J.B. 



DISTRIBUTION. 521 

realized, or to the quantity of the goods produced, or even to the 
savings effected in the use of the raw material. Thus, some rail- 
way companies give bonuses to their engine-drivers in proportion 
to the amou'nt of coal they have succeeded in saving. 

It is probable that as this system develops, it will come more 
and more to coincide with a real partnership. Such as it is, it 
has already rendered very great services. It interests the work- 
man in the success of the business, and therefore incites him to 
exert all the energy of which he is capable. It unites the work- 
man's interests with the employer's, and thus prevents disputes 
and strikes. It keeps the workman in the same factory year after 
year, and tends to guarantee permanent employment. It en- 
courages thrift by splitting up the workman's income into two 
portions, — the weekly wages, which are devoted to current ex- 
penses ; and the dividend distributed at the end of the year, which 
makes a surplus that is quite ready for investment. Usually, 
indeed, the employer makes sure of this saving by withholding 
part of the dividend at the year's end, and carrying it forward to 
the workman's account in a special fund, — say a superannuation 
fund. 

The attitude which the classical school holds with regard to 
profit-sharing is one of ironical interest rather than of pronounced 
hostility. The following are the principal criticisms it passes : 
Workmen have no right to profits, for in every business it is the 
employer, and not his men, who really makes them ; they are the 
result, not of the actual process of manufacture, but of the sale of 
the products, and with this workmen have nothing whatever to do. 
— We need only rejoin that capitalists have even less to do with 
the creation of profits than workmen are supposed to have, and 
yet their participation in the profits of any business is regarded 
as perfectly natural, if only they are shareholders. — The second 
criticism is, that it would be unjust for workmen to share in the 
profits, since their position ipso facto prevents them from bear- 
ing the losses. Our answer is, that this difficulty might be turned 
by the establishment of some insurance fund against risks which 



522 PRINCIPLES OF POLITICAL ECONOMY. 

should be partly supported by a deduction made from the men's 
wages. Further, under the wages-system now in vogue there is 
injustice in a far different way. Though the workman has no share 
whatever in the profits, he does have to bear the losses ; for, if the 
business does badly, his wages are reduced ; and if it stops alto- 
gether and the works are closed, he is thrown out of employment 
and is deprived of all his wages. 

Section 2. Producers' Co-operative Societies. 

Association for production is a far more radical measure than 
profit-sharing ; the latter retains the employer, the former does 
away with the wages-system. Workmen, instead of laboring on a 
master's behalf, band together to produce on their own account 
and at their own risk and peril ; as they are, moreover, the 
owners of their instruments of production, they naturally keep for 
themselves the whole of the produce of their labor. This is the 
position of the autonomous producer whom w^e have already dis- 
cussed ; but here, instead of there being one solitary laborer, we 
have a group of laborers forming a unit, a transformation which 
has been rendered necessary by the requirements of large pro- 
duction. 

France is regarded as the classic land of these associations, and 
seems, indeed, to have taken the initiative in the matter, for the 
first French society for production dates as far back as 1833. 
Moreover, at the close of the Revolution of 1848, this movement 
assumed great vigor, and more than two hundred workmen's asso- 
ciations for production were started in France, many of them being 
in Paris ; but few of these have survived, nor has a more happy 
fate attended their successors. At the present time the number 
is about sixty, and in Germany and in England the figures are 
approximately the same. These producers' co-operative societies 
have several obstacles to encounter, and these only too fully ex- 
plain their want of success. 

The first and greatest lies in the working class's lack of ecopotnu 



DISTRIBUTION. 523 

education. Thus laboring men are rarely able to find among 
themselves men who are of sufficient ability to manage an indus- 
trial business. Even if the fitting persons are found, they cannot 
be chosen to kct as managers, for their very superiority too often 
serves to exclude them. Further, even supposing that the direc- 
tion of the business is confided to them, it is difficult to guarantee 
them a share in the produce of the undertaking that is propor- 
tionate to the services they render, for the superiority of intellec- 
tual work over manual labor is still insufficiently understood. We 
must hope that this economic education will be gradually acquired 
by the practice of association in its various forms, especially in 
producers' societies, but also in consumers' associations. 

The second drawback is the want of capital. We are aware 
that, even if the capitalist could be blotted out of the process of 
production, capital could never be made to disappear likewise ; 
for the system of large production now in vogue demands ever 
increasing supplies of capital. Now, how can plain workmen 
obtain these large sums ? From the pence that they might put 
by from their daily earnings ? That is possible ; it has been done 
in a few businesses occupied in small industry, but even then at 
the price of heroic sacrifices. We cannot reckon on any general 
accumulation of such tiny sums. Shall the workmen obtain the 
desired capital in the shape of loans from the government? The 
experiment was made in 1848, but the ^120,000 sterling that 
were then distributed brought little luck to the societies that 
received them. Nothing is easier to waste than given money, 
especially when the State is the donor. Yet the socialists appear 
to favor this plan. Lassalle used to call upon the government 
to become sleeping partners in producers' co-operative societies 
and advance some millions sterling to them ; thus they would be 
powerfully organized and would be able to sustain a victorious 
struggle with businesses carried on by capitalist employers. 

However, this difficulty is not insurmountable. Workmen's asso- 
ciations, when once they have been substantially organized and 
have won their spurs, might easily be able to borrow all the capital 



524 PRINCIPLES OF POLITICAL ECONOMY. 

they might require. Have not the German co-operative credit 
societies been able to obtain their ^20,000,000 sterUng? Besides, 
the capital might be procured in a direct way by the prior con- 
stitution of consumers' co-operative societies ; the profits of the 
English societies of this kind amount to a score or so of millions 
sterling. 

The third danger is that they tend to reconst7'iict the very insti- 
tutions it 7vas their object to do away with, namely, the system 
of employer and wages-earner. So great is the difficulty of modi- 
fying any social structure ! For whenever these associations have 
proved successful they have closed their ranks, refused new 
members, and engaged hired workmen, so that they have become 
nothing more than companies carried on by small employers.^ 
We cannot gainsay the force of this accusation which socialists 
bring against co-operation. Still, we should attribute to work- 
ingmen the possession of a disinterestedness of a rare kind, if 
we were to expect those who have labored from the beginning 
and have founded a prosperous business through dint of persever- 
ance and by means of privation, to admit on a footing of equality 
those who wish to enter at the eleventh hour when the work is 
done. There is reason to hope that these obstacles may be at 
least partly smoothed away by a due course of preparation which 
can be effected in two ways : — 

Firstly. By profit-sharing ; if the master agrees to abdicate 
his place, as it were, by organizing the participation in such a 
manner that the workmen can become his partners during his life- 
time, and his successors on his death. To cite the most famous 
examples, this has been done by M. Godin in the case of the 
Famihstere of Guise, and by Madame Boucicault for the Bon 
Ma7'che ; 

Secondly. By consumers' co-operative associations ; these, when 

1 This was true, for example, of the Rochdale Pioneers. Even now the 
productive works of the great English Co-operative Wholesale Society (though 
not those of the Scottish) are carried on by hired labor that has no share in 
either profits or management. — J. B. 



DISTRIBUTION. 525 

sufficiently developed and interfederated, can start producers' co- 
operative societies, which they might supply, at one and the same 
time, with capital, with managers, and with a body of customers, — 
the very elements, be it noted, which have hitherto been wanting. 
In England consumers' societies have already adopted these tac- 
tics ; they have founded some co-operative industries and support 
others. 

Like profit-sharing, co-operative association is not regarded 
favorably either by economists of the Liberal school, who think 
that the existing social order is satisfactory and need not be 
changed, or by the extreme sociaHsts, who hold that The Revolu- 
tion is inevitable, and that it is therefore useless to play at political 
economy. Indeed, socialism generally is not greatly enamoured 
of co-operation, and regards it at the best as a transition measure. 
Though co-operative production aims at the abolition of the 
wages-system, it retains private property in capital as its basis, 
for its object is to make the laborers joint proprietors of their 
instruments of production. Now, collectivism has in view the 
" sociaHzing " of all instruments of production ; that is to say, their 
withdrawal from all private appropriation, even from the laborers 
themselves. Our main objection to the socialistic programme is, 
that instead of putting an end to the wages-system, it is uncon- 
sciously tending to make it universal. For, as soon as society is 
the sole owner of all instruments used in production, it will be 
the only employer or master, and all men will be its hired and 
wage-earning laborers.^ 

In fine, in spite of all adverse criticism, co-operation is the 
sheet-anchor of those who .hold that there is a social question to 
solve and a social revolution to avoid. 

1 But see our author's own remarks at the beginning of Book IV, Part II, 
Chap. Ill, p. 489. —J. B. 



CHAPTER IV. 
THE MAN WHO LIVES ON HIS INCOME. 

I. The Right to be Idle. 

In every society there is a certain class of persons who do 
nothing, but who, none the less, enjoy incomes which, usually 
speaking, are very large indeed. Does not the existence of this 
class of do-nothings appear to be in flagrant contradiction to our 
principle, " each man according to his own labor " ? Seeing that 
they do not work, what right have they to live, and, what is more, 
to live well ? We are certainly entitled slightly to alter a line in 
the First Eclogue, and to ask these privileged mortals, who is the 
god who has granted them this ease : Deus vobis hcec otia fecit? 

The explanation is simple enough. These persons are owners 
of land, or of a house, or of some form of capital ; now, instead 
of working their land or capital for a profit, on their account, 
or instead of dwelling in their house, for one reason or another, — 
perhaps merely for the pleasure of doing nothing, — they let or 
lend their property to other people in return for a sum, which is 
payable annually, under the name of interest, land-rent, or house- 
rent. On this payment they live ; as the saying goes, they live 
on their income. 

Must they be debarred from so doing ? If so, by what right ? 
Of course, if we reject the principle of private property, the right 
to lend and the possibihty of living on one's income vanish simul- 
taneously. But we have already accepted the principle; and it 
is, therefore, difficult to see how we can refuse the producer the 
right to dispose of his article as he pleases, and especially the right 
to lend it or to let it in return for a fixed payment. 
526 



DISTRIBUTION. 52/ 

As we are aware, the collectivist school denies this right. It 
certainly allows the producer to do what he will with the portion 
of wealth which he has legitimately gained, — to consume it, destroy 
it, give it away to the person of his choice, — but it forbids him to 
lend it, just as it prohibits him from making money out of it by 
means of workmen whom he pays in wages ; for in either case he 
would be living on the products of other people's labor. 

It is incontestable that the man of independent means does live 
on other people's labor ; but he cannot be said to Hve at other 
people's expense, if, by the operation of lending or letting, another 
man reahzes a gain or effects a saving which is more than the 
interest or house-rent which he has to pay. Now, it is probable 
that this is the case ; for otherwise, why should the borrower, the 
tenant, or the lodger, strike the bargain? 

The rejoinder is, that this argument might serve if the wealth 
lent by the do-nothing was really the product of his personal labor, 
and if he could be said to live on the results of his past labor. 
But that is not so. The landowner, who lives on his farm-rents, 
has not made the land ; the landlord, who Hves on his house- 
rents, has not built the house, but has employed workmen to build 
it ; even the capitalist, who lives on his income, as often as not 
has not gained his capital himself; he has received it, already 
made, from those who have left it him as an inheritance. Our 
only answer can be to refer the reader to our previous explanation, 
which shows the extension of the rights of property, by a logical 
evolution, from the products of personal labor both to land, to 
possessions acquired by inheritance, and to the produce of all col- 
lective undertakings. It is legitimate to dispute the extension of 
the rights of property to these various kinds of wealth ; but when 
once the former have been granted, it would be out of the ques- 
tion to mutilate them by depriving them of one of their essential 
attributes. 

Thus, the existence of an " idle " class is easily explained as 
far as regards right. Is it more vulnerable when we look to social 
utiHty ? Yes, cries every socialist ; and John Stuart Mill was of 



528 PRINCIPLES OF POLITICAL ECONOMY. 

the same opinion. The point is to discover whether this class 
serves any social purpose. 

The unoccupied are not necessarily the drones of the hive. 
Lack of occupation, or "idleness," may be fertile in result and 
fulfil a real social function. In its scientific sense, the epithet 
" idle " does not exactly mean people who do nothing ; but desig- 
nates those persons whose position in life frees them from all 
anxiety as to their daily bread, and who can therefore turn to any 
occupation save productive or lucrative labor. In the opinion of 
the ancients, it was indispensable that citizens should have all their 
time free for the purpose of joining in public affairs. Even at the 
present day, the fitting management of certain social interests, 
the disentangling of the subtle threads of politics and of diplo- 
macy, the holding of the reins of government, the swaying of the 
sceptre of taste in the realm of arts and letters, require delicate 
hands which have not been hardened by daily toil, and minds 
which are not heavily burdened with anxious thoughts as to tasks 
that have to be completed and livings that have to be gained. 
Such high functions cannot be executed in odd hours snatched 
from the labors of the workshop or the counting-house. 

Under such conditions, idleness, or leisure from work, is merely 
a clear instance of division of labor ; and, if used in that manner, 
should by no means be proscribed, but should rather be regarded 
as the supreme recompense that can crown the aspirations of those 
who have labored enough and have produced enough. For long to 
come this privilege will only fall to the lot of a few men, because, 
as we have often had to observe, our modern societies are too poor 
to grant many of their number the blissful luxury of leisure. But 
the ranks of the sharers in this privilege will, we may fairly hope, 
be constantly reinforced. 

Two reservations must be made : We must learn whether those 
of us who exercise these high social functions strive their hardest 
to promote social welfare, or whether they endanger the public 
interests by making no other use of their leisure than the in- 
vention of some new mode of squandering wealth. We must 



DISTRIBUTION. 529 

further ascertain whether their share of the general distribution of 
wealth is really equitable. In France this portion cannot be less 
than ;^i 60,000,000 or ^200,000,000 sterling (say ^120,000,000 
in interest, dividends, or fines for delayed payments ; ;£4o,ooo,ooo 
in land-rent, and ^40,000,000 more in house-rent). For the ser- 
vices rendered, this amount is certainly a large one. 

We will now study in turn each of the three classes which com- 
pose the group of those who live on their incomes. 

II. The Rent of Land. 

Of the three classes, the landowner who lives on his rent is 
certainly the most open to attack. 

The weak point in his position is easily seen. We have already 
granted that the institution of landed property is indispensable for 
the development of agricultural production to the highest degree, 
and for obtaining from the soil the greatest possible returns. 

We have thus been led to consider landowners as invested with 
a real social function, in fact, as administrators to whom society 
has intrusted the cultivation of the soil, for which their fixed and 
final remuneration is to be the sum total of all that they may 
succeed in producing. 

So much we grant; but the landowner scarcely seems to be 
carrying out his mission, when he neglects his charge of cultivating 
the soil and converts his land into an instrument of profit and a 
means of living without working. We cannot easily admit that 
land has been distributed amongst a few men, like the benefices or 
glebe-farms in the king's gift, merely that it may yield them a 
certain income. Thus th6 reasons which induced us to agree to 
the rights of property do not appear equally to justify land-rent. 

Further, we have seen that the inevitable effect of the laws of 
landed property and the progressive unearned increment of the 
soil is to continually raise the amount of farm-rentals. Thus this 
class of " idle " landlords obtain a constant rise in their income 
without having to bestir themselves in the least. This was the 



530 PRINCIPLES OF POLITICAL ECONOMY. 

origin of the territorial aristocracy of the English noblemen and 
gentry. 

Accidental and temporary causes — for example, the present 
competition of American land — may arrest this tendency, but do 
not alter its direction. 

Again, agriculture is gravely damaged by the separation of the 
respective functions of owner and cultivator, which results from the 
system of leases. No man is able to get from his land all that 
he possibly can, unless he learns to love it and becomes attached 
to it. When land is merely let on lease, the landlord does not 
experience this feeling, for he does not live on this part of his 
estate, — is even, perhaps, altogether ignorant of it ; nor does the 
farmer cherish this sentiment, for he is only a bird of passage and 
feels that he is a stranger. Compare with this Michelet's descrip- 
tion of the peasant proprietor : " When thirty paces away, he stops, 
turns back, and casts upon his land a last look which is at once 
profound and sombre ; but for the keen-eyed obsei*ver that look is 
full of passion, love, and devotion." Land will never be looked on 
with such an eye of love, either by the farmer who occupies it, or 
by the owner who has let it as farm-land. 

On the other hand, M. Leroy-Beaulieu holds that a division of 
functions is formed between owner and farmer, which is very ad- 
vantageous to a satisfactory organization of production. In the 
first chapter of his Essai sur la repartition des richesses he writes, 
" The landowner represents the future or perpetual interests of the 
estate, whereas the farmer only stands for the present but tem- 
porary interests." That sentence is very well put ; but even if 
the landowner has that perfect understanding of the part he has 
to play, still it is possible that present and future interests may 
clash, and it would be better that the same person should preside 
over both. 

The ordinary farm-tenure does not show nearly so well as the 
system of metayer cultivation, the characteristics of a real partner- 
ship between owner and cultivator ; especially is this the case when 
under the method of metayage the landlord provides the capital as 



DISTRIBUTION. 53! 

well as the land. But the system of fnetayage loses all its merits 
when the owner is content with levying a yearly share in kind, and 
demands half the crops. In Algeria he takes as his share four- 
fifths of the produce. 

However, in spite of all arguments for and against, the power 
of farming out one's land is too intimately bound up with the right 
of private property for us to dream of abolishing it. When once 
we have acknowledged the rights of property to be legitimate, it 
is out of the question to deny the legitimacy of letting land on 
lease. 

Nay, the interests of agriculture might be endangered by a sup- 
pression of the method ; land, owing to the vagaries of circum- 
stance, may happen to be the property of persons who are totally 
unable to cultivate it themselves ; the reason may be their age, 
their sex, their profession, their forced absence, or the extent and 
multiphcation of their estates. If such be the case, what better 
can be done than to let out the land in farms ? 

To minimize the disadvantages of the system, the lawgiver 
should turn his attention to two points. 

Firstly. He should strive to reduce as far as possible the 
custom of granting farm leases, and should, instead, favor the 
cultivation of the land by the owner direct. The French Civil 
Law contributes to this end by the assistance it gives to small 
ownership. In France 40 per cent of the cultivable land is 
held by farm leases, or under the metayer system, as against 
60 per cent which is cultivated by the landowners themselves. 
That is a very fair proportion ; for in few countries (new. lands 
and colonies excepted) does land held by lease occupy less than 
half the whole area. 

But the French law is far less felicitous when it multiplies 
the conditions of inalienability on real estate belonging to minors, 
to women, and to corporations. In such cases the holding of 
farms by lease is rendered obligatory, for the law hands over the 
care of landed property to persons who are incapable of working 
it for a profit themselves. Thus the public interests are harmed 



532 PRINCIPLES OF POLITICAL ECONOMY. 

under the pretext of preserving certain private interests. The 
administrators of such estates (guardians, husbands, and so forth) 
are forbidden by law to grant really long leases ; hence the evil is 
aggravated. 

Secondly. The second point is : wherever farm leases are un- 
avoidable, the law should require that the interests of agriculture 
should be fostered, either by long leases, or by giving the farmer 
the right to the surplus value which accrues from his labor. 

III. House-Rent. 

From a theoretical standpoint the right to house-rent escapes 
the objections that can be made to the institution of farm-rent, 
for it cannot be denied that a house is the product of labor. 
There may be controversy as to the site on which the house is 
erected, but none as to the building itself. 

From a practical point of view, also, this right is seen to rest 
on a firmer basis. There is no harm in the circumstance that 
some people build houses, not to live in themselves, but to let j 
for in that way they render very great service to all those who 
require a dwelling. It might be more convenient, perhaps, if they 
did this gratuitously, or even agreed to pay the tenants care- 
takers' wages, as some socialists facetiously ask ; but, as in that 
case no one would build a house except for his own personal use, 
those who were not well enough off to own a house would be 
obliged to do without one and sleep in the open air. 

Yet of all persons who live on their income, no one is more 
cordially detested by the working classes than the " landlord," 
and no tax is more odious and burdensome to them than that 
which is expressed by the term which contains a world of sorrow, 
the " rent." 

The reason is, house property, even more than property in land, 
is becoming a monopoly ; all the social, economic, and pohtical 
causes which urge our population to mass together in the great 
towns, viz. political centralization, production on a large scale. 



DISTRIBUTION. 533 

the development of the railway system, open-air entertainments, 
theatres, and music-halls — all these tend constantly to raise 
house-rent, to the great benefit of the owners of house property 
in towns, but to the great detriment of the public. Forty years 
ago the urban population of France was rather less than a quarter 
of the population of the whole country (24.42 per cent, to be 
exact) ; at the present day it is rather more than a third (35 per 
cent) . Thus the population of the towns has increased by nearly 
50 per cent in the last forty years even in France, in which country 
the increase of town-population has been least large. 

This is one of the most grievous of all the consequences of the 
present evolution of economics. House-rent was unknown to the 
ancients ; in their days the house was not only the family hearth, 
but was also the shrine of the penates, the household gods, and 
each man, rich or poor, had his own dwelling. In our time, 
however, the exigencies of modern life have caused men to revert 
to a species of nomadic existence, and prevent them from taking 
a firm root in their native places. Hence the majority of them 
have to live in lodgings. 

The rich may survive this ; their sufferings will not be beyond 
bearing ; but it is quite another matter for the poor. The increase 
of house-rent, which has compelled the working classes to huddle 
together in wretched quarters, produces most deplorable effects 
as regards both health and morality. It is one of the chief causes 
of most of the vices that afilict the working classes, — relaxation of 
family ties, frequenting of public houses, and precocious de- 
bauchery, — nay, from it may spring some of the scourges of 
society ; for instance, excessive mortality and epidemical diseases. 

The only efficacious remedy would be an evolution in precisely 
the opposite direction, by which the growth of the great towns 
might be stopped, and the country districts be once more peopled 
by the inhabitants who have deserted them. We need not aban- 
don all hope of such a change, but at present it shows no signs of 
being reahzed. Still, great good may be done by conveyance at 
cheap rates, as by the omnibus^ the tram-car^ and railways between 



534 PRINCIPLES OF POLITICAL ECONOMY. 

the heart of a town and its suburbs. By these means workmen and 
business employes can obtain more healthy and cheaper dwelhngs, 
which may be at some distance from the very centre of the city. 

Another remedy, which is the most practical of all, is to build 
houses which are to be let to workmen, and can finally become 
their property by payment of a small sum yearly. Various insti-. 
tutions seek to reach this end, but full details cannot be given 
here. One of the most interesting of all is the association of 
workmen themselves for the building of these houses. However 
ridiculous we may think the saying attributed to Joseph Prud- 
homme, that " people who cannot pay their rent ought to have a 
house to themselves," the only solution of the problem will be 
found in giving the workman a domestic hearth and a real home. 

These building societies^ are very numerous in England and 
the United States ; and in Philadelphia they have been so success- 
ful that almost every workman has his own house, and the city 
has received the proud name of the " City of Homes." 

Moreover, in England, and also in France, there are many 
philanthropic undertakings which have been started for the pur- 
pose of building workmen's dwellings. The usual practice is to 
be satisfied with a return of four per cent on the capital, or 
to devote the whole of the rents received to the building of new 
houses. A proposal has been made to employ for this purpose 
the funds of savings banks, which in France are turned to no 
really beneficial use, and the experiment has been made lately at 
Marseilles. An investment of this kind would certainly be very 
safe to make, and would be of much utility. 

The socialists demand that these workmen's dwellings should 
be erected by the State or by municipal bodies. In the opinion 
of the collectivists, the State or the district authorities should 
expropriate (with or without compensation) all owners of house 
property, and should then let the houses, either at a rent equal 
to the cost of construction, or gratis. This is land nationalization 
applied to house property in towns. 

1 M. Raffalovich gives an account of these Building Societies in his book 
Le Logemeni de V Ouvrier (Paris, 1887). — J. B. 



DISTRIBUTION. 535 

To such a proposal our answer must be the following : In the 
first place, if the State exacts no house-rent, the earliest result will 
be public ruin ; and, further, the overgrowth of our great towns 
will continue to increase in even more lamentable proportions. 
It is clear that, if in Paris every one could live rent free, few persons 
would deny themselves that pleasure. Secondly, if the State does 
compel its tenants to pay their rent, and punctually too, it might 
speedily become as unpopular as any landlord under the existing 
system, and might have even greater trouble in obtaining payment. 

IV. Interest. 

The legitimacy of land-rent and house-rent was never attacked 
until men had begun to dispute the rightfulness of landed prop- 
erty and house property. But the legitimacy of interest was keenly 
assailed long centuries before any one ever dreamt of denying 
public property in capital, and ages before socialists began to 
exist. Its opponents have not merely been a few troubled 
spirits, but have comprised the most illustrious representatives of 
human knowledge, — ancient philosophy, with Aristotle ; the Cath- 
olic Church, with the Fathers ; the Reformed faith, with Luther ; 
Civil Law, with Pothier, — the list might never end if we were to 
enumerate all those who have fought against this form of income, 
and have branded it with the name of usury. For centuries pro- 
hibited in greater or less degree by civil and by canon law, loan 
for interest still bears the brand of this old-time reprobation in its 
limitation to five per cent by the French law of 1807. But no 
one has ever thought of fixing a tariff for landlord or house-rent. 
This law of 1807 had fixed the rate of interest at five per cent in 
civil matters, and six per cent in commercial matters. The latter 
restriction, which was practically a dead letter, was finally abolished 
in 1885. The limitation still subsists for loans made by other than 
business men, and it has long been debated whether this survival, 
too, ought not to be aboHshed, and perfect freedom as to the rate 
of interest thus inaugurated. For more than a century the Liberal 
school has upheld this view, with the famous treatises of Bentham 



536 PRINCIPLES OF POLITICAL ECONOMY. 

and Turgot among their earliest manifestoes. This final abolition 
of all restrictions would certainly be the logical solution ; but in 
some countries usury is still a public scourge, especially in rural 
districts, and its branding by law is by no means disadvantageous ; 
for, whatever may be said to the contrary, laws do help to form 
morals. 

There must have been some reason for this general disapproba- 
tion of usury, nor is it difficult to find. 

With farm-leases the income may be seen, so to speak, to pro- 
ceed from the earth itself in the shape of crops, and it is thus 
perceived that the rent paid to the landlord is not abstracted from 
the farmer's pocket. The latter only returns the produce of the 
instruments of production that have been entrusted to him ; and 
as he does not give back more than a portion, he must make some 
profit after all. 

With loans, however, the returns do not visibly proceed, as 
interest, from the money-bag that has been lent ; for as Aristotle 
said, " One coin has never given birth to another coin." Thus 
the borrower's pocket was regarded as the only source from which 
interest could spring. It was in accordance with this view that, 
in his comparison of the landlord and the capitalist. Saint John 
Chrysostom waxed wroth and asserted " that the lender practised 
a damnable form of agriculture, reaping where he had not sown." 

It may be rejoined, no more does a house produce anything, and 
the tenant has to pay the rent out of his own purse. Granted ; 
but, though it is unproductive, a house is not consumed, and 
when the lease falls in, the tenant need only give up the house as 
it is, and is then free of further liability ; whereas it is beUeved 
that capital is not only unproductive, but must necessarily be con- 
sumed. Thus, when the date of payment comes, the unfortunate 
borrower will have to draw upon his own property, not only for 
interest, but for the principal to boot. 

We must confess that this opinion was a sound one, both dur- 
ing antiquity and in the Middle Ages. For long centuries loans 
were almost exclusively loans for purposes of consumption. The 



DISTRIBUTION. 537 

Roman plebeian who borrowed from the patrician to buy bread, 
the knight of feudal times who borrowed from the Jew to pur- 
chase armor, both devoted the money they received to consump- 
tion which was personal, and therefore unproductive. 

Under such conditions lending could not but be an instrument 
of ruin, and hence the justification of so ancient and wide-spread 
a prejudice. But at the present day the circumstances are radi- 
cally altered. In old times the rich lent to the poor ; it is now 
the poor who lend to the rich. Thus the Suez Canal was made 
by the loans which the Company received from people of small 
means. Formerly men borrowed so that they might live ; nowa- 
days they borrow to make their fortunes. In past time it was 
considered necessary to protect borrowers against the rapacity of 
lenders ; in our days it might be more expedient to set about 
defending lenders against the sharp practices of borrowers. In 
fact, credit has now assumed its real character, and the only one 
it ought to possess in economic organization ; it has become a 
mode of production. 

We do not mean to say that the deplorable and ruinous forms 
manifested by credit in older days have yet entirely disappeared. 
They are still kept alive by the young men with " expectations " 
who sign promissory notes, by the badly off who buy on credit at 
retail shops, and most of all by the governments that issue loans 
so that their cannon may be fed ; but these are the exceptions. 
The largest part of the huge sums that daily pass from hand to 
hand through the instrumentality of credit is excellently employed 
in productive labor. 

Hence the old prejudice against the legitimacy of interest has 
grown to be out of date.' Capital which is borrowed serves to 
produce, just as well as land which is leased as farms ; and the 
interest paid is only a share taken out of the profits that have 
been made, and is not a toll levied on the personal labor of the 
borrower. Further, we cannot call capital, like land, a sort of 
deposit which society has entrusted to the owner for him to turn 
to profitable use by means of his labor. Capital has not been 



538 PRINCIPLES OF POLITICAL ECONOMY. 

thus entrusted to the capitahst by society ; it is the creation of 
the capitahst himself. 

When once we thoroughly understand the part that capital plays 
in production, the question as to the legitimacy of interest is virtu- 
ally settled, and it would be idle to discuss all the arguments for 
or against loan for interest which lawyers and theologians have 
accumulated in a long course of learned casuistry. Even the 
socialists have ceased to speak of them. But with them the con- 
troversy has been transferred to another quarter. They do not 
deny that interest is the necessary, and therefore the legitimate, 
consequence of private property in capital ; but they strike nearer 
home, and attach this very private property in capital. We can 
only refer to our previous discussion of this theory. 

It may not be inexpedient to summarize the arguments for and 
against interest. They have been recently revived by M. Modeste 
in his book Le pret a interet, dej'niere forme d'esdavage (Lending 
at interest, — the last form of slavery) . Putting aside the classical 
argument drawn from the unproductivity of capital, the two follow- 
ing are the best known. 

Firstly. It is said that by lending his capital the lender incurs 
no real privation, and that therefore he has no claim to any com- 
pensation in the shape of interest. This assertion has been fool- 
ishly answered by an attempt to prove that the lender does suffer 
harm ; but that is not the question, and it is no matter whether 
he deprives himself or not. What principle binds me to put 
gratuitously at the disposal of my fellow-men all the property that 
I cannot or do not wish to make use of myself? Must I allow 
other people to make their abode in my room because I am 
obhged to be away, or let them eat my dinner because I am not 
hungry? Such a claim would need to be based on the principle 
that a man has a right only to the amount of wealth that is neces- 
sary for his own consumption, and that the surplus belongs by 
right to the general bulk of mankind ; clearly, that is simple com- 
munism, and the whole argument is idle when once we have 
admitted the right to private property. 



DISTRIBUTION. . 539 

Secondly. The second argument states that perpetuity of inter- 
est is a monstrous thing. At the rate of five per cent (without 
reckoning compound interest) at the end of twenty years the 
lender will by the successive payments have recovered all his 
capital ; in forty years he will have received it twice over, and in 
a century five times over. Yet all the time he retains his right 
to the entire reimbursement of the capital. 

We must answer that payment of interest is by no means the 
same thing as repayment of the capital, any more than rent is the 
same as the purchase price of land. The two things are altogether 
unrelated. Interest is the price of a service rendered, the pay- 
ment for the use of an instrument of production for a certain 
time. Now, if the service rendered is constantly renewed and the 
use made of the instrument can be perpetual, why should not 
interest also be perpetual? We grant that capital does not last 
forever ; some capital is instantaneously extinguished, other capi- 
tal ceases to exist after a certain time. But every operation of 
production (if only it is well done) should either immediately, or 
sooner or later, reproduce a value equal to that of the capital con- 
sumed. Otherwise it would not be productive. Like the phoenix, 
capital eternally rises again from its own ashes. This question of 
the legitimacy of interest forms the subject of a discussion between 
Bastiat and Proudhon in the collected works of the former. 

V. Does the Rate of Interest tend to fall? 

The progressive and continuous fall of the rate of interest is as 
well accredited as any theory in political economy, and economists 
of the classical school cite' it as an example of a law which is both 
natural and harmonious. Their method of proof is as follows : - — 

There are three elements in interest. 

Firstly, the price paid fo7' the hire of capital. This is the essen- 
tial element, and is determined by the law of supply and demand ; 
that is to say, by the greater or less abundance of capital in the 
market. 



540 PRINCIPLES OF POLITICAL ECONOMY. 

Secondly, the premium of insu7'ance against risk. P'or, though 
the lender is not concerned in the business, and therefore need 
not be anxious about losses, he always runs one risk, namely, the 
insolvency of the debtor. 

Thirdly, a share in the produce of the business. Though the 
lender takes no actual part in the business, and consequently 
shares in the profits no more than he does in the losses, yet his 
portion will clearly be the larger, the more productive is the 
employment that the borrower makes of his capital. 

These variations in the three factors are measured by the rate 
of interest. We know that, other things being equal, the rate of 
interest is higher the scarcer capital is, or the greater the risk to be 
run, or the greater the facility of obtaining more productive em- 
ployment for the capital. The simultaneous action of these three 
causes in colonies or new countries, such as Australia and the 
United States, maintains the current rate of interest in those regions 
at eight or ten per cent, or even higher. Now, these causes, 
which tend to raise the rate of interest in a new society, ought to 
have the reverse effect in a society which is growing old, and 
should therefore induce a progressive lowering of the rate of 
interest. The exponents of this theory hold that the further we 
proceed, capital will undergo certain changes. It will be less 
productive, for the employments that are possible for it will grow 
scarcer and become less and less remunerative. It will be more 
plentiful, for it will have been accumulated in large quantities by 
a course of saving which has been carried on for many generations. 
It will be safer ; for a growing security — political, legal, and 
moral — will tend to arise from a calmer life, from more civilized, 
if not more honest, customs, from a more regular administration, 
and from a government which obtains a readier obedience. 

Were this law of the progressive decrease of the rate of interest 
a really certain one, it would be highly beneficial both in the 
distribution and in the production of wealth. From a distributive 
point of view, as it would steadily reduce the levy made by capital 
on production as a whole, it would proportionately increase the 



DISTRIBUTION. 54I 

share that falls to labor. For we must remember that the rate of 
interest does not only determine the income of capitalists ; it also 
indirectly determines the rate of profits, house-rent, and agricultural 
rent ; in other' words, the income of all the possessing classes. 

In the matter of production, the very fact that it would con- 
tinuously lower the price paid for capital and therefore the cost of 
production, would facilitate the execution of undertakings which 
up to the present have been impossible. For instance, take a 
piece of land that might be cleared, or houses that might be built 
for workmen's dwellings ; — they cannot yield more than three 
per cent. With the current rate of interest at five per cent, no 
capital could be found for such undertakings, or they could only 
be carried on at a loss. Hence they will not be attempted ; but 
if the rate of interest falls to two per cent, every one will hasten 
to take up such businesses. Turgot, in a celebrated figure, has 
compared this fall of the rate of interest to the gradual sinking of 
the waters through which new lands can be put under cultivation. 

Though we do not altogether deny the force of these arguments, 
we cannot consider that this law is sufficiently proved. The value 
of capital, hke the value of land, of manual labor, or of any other 
article, is determined by its utility and its' scarcity. The most 
rational forecasts show that capital must tend to become more 
and more plentiful, but we see no reason why it should become 
less and less useful. 

The supply can constantly increase ; but, given the exigencies 
of production, the demand should do the same. There is no 
proof that the risks incurred in producing are less than they used 
to be, or that they will grow less in the future in proportion to 
man's increasing boldness and enterprise ; say, when he travels by 
balloon instead of by rail or steamer. Nor is the theory in 
accordance with history ; at the fall of the Roman Empire, fifteen 
centuries ago, the rate of interest was almost the same as it is 
to-day; and in the Low Countries, in the eighteenth century, it 
was perhaps rather below the present rate. Moreover, if the rate 
of interest is destined to fall in an unlimited progression, we ought 



542 PRINCIPLES OF POLITICAL ECONOMY. 

to be logical to the end of the series, and say that some day it 
will fall to zero. Professor Foxwell, the English economist, has 
had the courage to do this ; he declares that the time will come 
when capitaHsts, instead of receiving interest from those to whom 
they entrust their money, will have to pay them for keeping it for 
them. Then will the socialists rejoice, for Proudhon's dream of 
"gratuitous credit " will have been realized; but wisely enough, 
they do not regard such a state of things as one of the certainties 
of the future. 

M. Paul Leroy-Beauheu, who is one of the strongest defenders 
of this theory of the progressive fall of the rate of interest, relies 
mainly on the notion that business is destined to become less and 
less remunerative. This prediction is rash as far as regards manu- 
facture ; in agriculture its accuracy seems to follow from the law 
of diminishing returns, though M. Leroy-Beaulieu inconsistently 
refuses to accept that law. But the meaning of the law is, that 
to double the products, three or four times as much capital must 
be consumed ; therefore, the less generous to us land becomes, 
the more necessary and the more in request will capital be. 



CHAPTER V. 
THE INDIGENT. 

I. The Right to Relief. 

The various classes of persons that we have passed under review 
Hve either on the income they receive from some form of capital, 
or on the returns from their labor. But in every society there 
are a certain number of men who have neither of these resources 
to fall back on, for they own nothing and do not work. They are 
consequently in danger of starving. There may be three reasons 
for their not working. 

Firstly. They may not have the strength to work. This appHes 
to children, to the aged, and to all those who suffer from chronic 
diseases or infirmities. 

Secondly. They may not possess the means of working. It is 
not enough to be willing to work ; a man must also be able to 
find work ; in other words, he must have at his disposal the neces- 
sary materials and implements. But in times of crisis and during 
a lockout both these conditions are wanting. 

Thirdly. They may not be willing to work. All labor demands 
a more or less toilsome effort, so that many men, rather than 
make this effort, and what is worse, submit to the discipline that 
labor always requires, will ' prefer to run the chance of dying of 
hunger. 

Now, the presence of these three divisions of the indigent class 
cannot be ignored by society, and must claim attention. 

Common humanity of itself urges us to take care of the first 
category. In the natural order of things, the family should sup- 
port those of its members who are unable to keep themselves ] 

543 



544 PRINCIPLES OF POLITICAL ECONOMY. 

but in our days the family is often scattered, and in the case of 
natural children ( 70,000 or 80,000 of whom are born in France 
yearly) there is no such thing as a family. Society, then, must 
take its place. If a civilized society has to allow its children and 
the aged to die of hunger, it had better return to the savage state 
and kill them outright, for that would be less cruel. 

Society cannot neglect the second class, for it is partly responsi- 
ble for their position. Its own economic constitution causes this 
artificial, we might say unnatural, separation of the laborer from 
the instrument of his labor, and compels him to seek work in 
order to live. Crises and lockouts proceed from the very action 
of the law of progress, as manifested in large production, in 
mechanical inventions, in international trade, and in competition. 
It is fitting that society, which in its corporate form benefits by 
each step of progress and receives all the fruits of victory in the 
great battle of life, should also bear the burden of the fray, and 
succor those who are wounded and vanquished. 

The third category, though far less interesting than the fore- 
going, claims the attention of society because it constitutes a 
public danger. The vagabonds and the beggars are the recruiting- 
grounds of the army of crime. Whenever any of these commit 
any offence, society is obliged to house and feed them in jail ; 
and as nothing is more expensive than the support of a prisoner, 
it is at once more prudent and more economical to aid possible 
prisoners before they actually become such. In the new model 
prisons in France each cell costs ;£^240. 

The right to be succored that these various classes of persons 
possess is called the right to relief, or the right to charity. Social- 
ists find something humiliating in the former phrase, and prefer 
to use the terms, the right to existence, or the right to labor, for 
those who are able-bodied. These are fine words, but at bottom 
they mean nothing more than a man's right to demand of society, 
i.e. of his fellow-citizens, the wherewithal to live. Besides, this 
right to labor merely aims at the wages to be earned ; the work 
is only a means to that end. In reality labor is not a right, but 



DISTRIBUTION. 545 

a duty. Now, there is nothing humiliating in a man being sup- 
ported by his fellows when he is unable to keep himself, and it 
may be legitimately claimed ; none the less, whatever name we 
give it, it is an act of relief. 

But when we employ the phrase, we must bring out its whole 
force, and note that its correlative is an obhgation on the part of 
society, which arises from nature and also from law. Many 
economists think that charity or relief is a duty for society, but 
not a right for the needy; but that is mere legal hair-split- 
ting. Whenever a person is in a certain state which the law has 
to determine, society ought not to be able to evade the obliga- 
tion of aiding him, and the necessary expenditure (for to that in 
practice is reduced the question whether the relief shall be bind- 
ing by law or optional) ought to be officially entered in the 
accounts of the State or the parish. 

The classical school, especially the adherents of Malthus, pro- 
test against legal relief. Its arguments may be summed up in the 
familiar formula, " The numbers of the indigent tend to increase 
in direct ratio to the aid that they can reckon on." The following 
is the ordinary way of proving the dictum. 

Fii'stly. The right to relief tends to encourage improvidence. 
There are numbers of people who might perhaps have conquered 
their troubles had they had only themselves to depend on ; but 
they neglect to put by for their old age or to provide for their 
children, because they count on the State performing these offices 
for them. As the farm-hands say in England, — 

" Hang sorrow and cast away care ! 
The parish is sure to find us ! " 

Secondly. The right to relief incites the pauper classes to 
increase their numbers. What have they to lose from having 
many children, if they are freed from the care of rearing them ? 
Nay ! they gain thereby, for the charity that is distributed is neces- 
sarily in proportion to the number of children. Thus, a kind of 
bounty is paid for the swelling of the numbers of the wretched^ 



54^ PRINCIPLES OF POLITICAL ECONOMY. 

and in the lowest depths of society a stratum of paupers is 
formed. Their names are on the workhouse book, just as the 
names of all of independent means are on the income tax lists ; 
generation after generation they transmit the heirloom of their 
rights and of their vices. A despised race are they, who are too 
degraded to be dissatisfied with their lot and ever to aspire to 
rise above it. 

Thirdly. The right to relief tends to weaken the productive 
classes of society in the interests of the unproductive classes, and 
is thus in direct opposition to natural selection, which tends to 
improve the organism by causing the higher to prevail over the 
lower elements. It is obvious that paupers are not the healthiest 
or the most vigorous portion of the social organism. Now, society 
can only support them by means of taxes which it has to lay on 
the product of the labor of those who do produce. But as paupers 
increase ad libitum, the toll which they levy on the true workers 
will also grow heavier and heavier, and in the long run may hurl 
into pauperism this really industrious class. As there are many 
men who can only just make both ends meet, and who are on the 
verge of indigency, a slight pressure of this tax may drive them 
down beneath that fatal level to swell the numbers of the poor. 
In England small proprietors are sometimes unable to pay the 
poor-rate, if it grows too heavy, and are then turned out of their 
houses ; their means are exhausted, and they become recipients, 
instead of givers, of relief.^ 

This theory of the proportional increase of paupers is certainly 
too dogmatic, for it is now recognized (and statistics are not 
hostile to the assertion) that the number of recipients of relief in 
England is regularly diminishing year by year. 

These arguments only show that we cannot be too careful in 
the organization of public charity, but they must not make us 
condemn the right to relief. 

1 This has been largely the result of more stringent administration, i.e. the 
relief has become less and less to be reckoned on. It has become more and 
more difficult to get, — J. B. 



DISTRIBUTION. 54/ 

It is true that a prospect of the receipt of a virtual income 
from pubHc charity may reduce productive activity or diminish 
saving ; but the same effect is more surely brought about by the 
certainty of a pension, the hope of an inheritance, or the mere 
possession of a certificate of government stock. 

It is true that the economic evolution of the social organism 
may be injured by our supporting and keeping all those who are 
diseased, infirm, incapable, or idle, or who are only simpletons 
and careless of their affairs ; but moral evolution, which is of no 
less importance, would be seriously harmed if the guiding principle 
of any society was, " Blot out the wretched ! " 

Finally, it is true that the birth-rate is higher in the classes who 
receive relief than in those who support themselves ; but, if the 
children of the former can be made useful citizens, the apparent 
harm would be really a benefit, especially in France, where the 
wealthy classes either cannot or will not increase their numbers. 

II. The Organization of Public Relief. 

Public relief should be organized on the following principles : — 
Firstly. It should be carried out by the district or local au- 
thorities, or by the parish, as is the case in England. For, as the 
commune or district is usually a small society, it has far more 
facilities than the State for discriminating between those who are 
really in want and those who are not. Further, it is generally 
more saving of its money. Under this system no one has a right 
to relief except in the district or parish to which he belongs. This 
obligation of legal domicile has some disadvantages, for in partic- 
ular it stirs up interminable disputes between respective districts ; 
but in France it might have the special advantage of keeping 
agricultural laborers in the parishes of their birth, and of thus 
partially preventing the depopulation of the rural districts and the 
filling to repletion of large towns. The various parishes might 
be saved from a too great inequality of their expenses, if they 
were to amalgamate together as they do in England ; and if their 



548 PRINCIPLES OF POLITICAL ECONOMY. 

funds were really insufficient, the State might come to their 
aid. 

Secondly, Relief should be ohligatojj ; in other words, the 
expenses should be provided for by a special fund. This is not 
so in France ; of course, like every other civilized country, 
France has a system for distributing relief, and in this way more 
than ;£2,ooo,ooo are spent yearly, — the " Budget of Public Re- 
lief" amounting to ^1,600,000 for the local parishes (over half of 
which goes to Paris alone), and ^^5 20,000 for the Central Gov- 
ernment. But this expenditure is in the main optional ahke for 
communes, department, or government; though there are two 
classes of paupers for whom expenditure is partially compulsory, 
namely, foundlings and the insane. No law has ever organized the 
right to relief in a positive way, though it has figured in most of 
the numerous Constitutions with which France has been blessed ; 
hence it has remained as an empty abstract principle. The main- 
springs of public relief in France are charity boards {bureaux de 
btenfaisa?ice) , hospitals, almshouses, homes {hospices), and asy- 
lums. The charity boards give outdoor relief to the needy ; the 
almshouses and asylums shelter the aged, children, and the help- 
less {i.e. the blind, deaf mutes, and the insane) ; the hospitals 
receive the sick. 

There are 15,780 charity boards in France; but as there are 
36,117 communes in the country, more than half (but, we may 
observe, the least important of them) lack such useful institutions. 
Their income (including local subscriptions) amounts to about 
;^2,ooo,ooo; but, as they do not distribute very much more thn;^ 
;^i, 000,000 a year, and the recipients of relief exceed 1,400,00c 
in number, the average per head yearly is the preposterously 
small sum of 1 7^-. 6d., or so. 

Far ampler are the resources of the hospitals, asylums, etc., for 
these amount to more than ;^5 ,000,000 (State and local contribu- 
tions being included) . Most of these institutions belong to their 
respective districts, though a few are government property. The 
hospitals fulfil their requirements adequately, but the asylums and 



DISTRIBUTION. 549 

almshouses are less satisfactory. This is especially so with alms- 
houses for the aged ; admittance into these can only be obtained 
on payment of board, or by orders which are very difficult to pro- 
cure. In fact, the condition of the aged poor in France is a dis- 
grace to the country. 

All these institutions are directed by administrative committees ; 
their main income is derived from property which they have 
acquired, either by gift or by bequest, in their capacity of charita- 
ble bodies ; besides the local subsidies, mentioned above, which 
are purely optional, they have a few other minor sources of 
revenue. For example, the State allows them the proceeds of a 
few small taxes, such as the ten per cent levied on the receipts of 
theatres and of pubHc performances. 

In England, as in all other Protestant countries, public relief is 
obligatory. In that country it is organized by a series of laws, 
the first of which was passed in the reign of Queen Elizabeth, the 
whole body constituting an imposing edifice of legislation. Each 
parish provides for the necessary expenditure by a special tax 
known as the poor-rate, which amounts to about ^8,000,000.^ 

On this question of public relief and legislation thereon, Europe 
may be divided into two well-marked portions. All Protestant 
countries recognize the principle of compulsory legal relief; in 
Catholic countries pubhc relief is only optional. There is a curious 
historical reason for this. During the whole of the Middle Ages, 
Catholic bodies, e.g. the monasteries, were entrusted with provision 
for the needy ; in the countries which accepted the principles of 
the Reformation, the State, on assuming the possession of the 
property of these religious bodies, also took over all their duties, 
including this duty of supplying relief. 

Thirdly. But this relief should so far as possible be carried on 
in special institutions, respectively adapted for the various classes 
of paupers. 

1 For the year ending Lady Day, 1888, the amount actually expended in 
England on relief was nearly ;^8,500,ooo; in Scotland, ;^887,ooo; in Ireland, 
nearly £\,^<^\,oqo. — ']. B. 



550 PRINCIPLES OF POLITICAL ECONOMY. 

(a) It should be administered to the really helpless ~ children, 
the old, the blind, and so forth — in homes and asylums, the 
places in which should always be in proportion to the requirements. 

(d) Able-bodied paupers, who have no work to do, should be 
received in workhouses, which they should be free to enter and 
free to leave ; in a more special manner, they should be drafted 
into agricultural colonies, and should be employed in field labor. 

We have previously refused to admit the right to work; but 
when dealing with the relief of able-bodied paupers we must retain 
the obligation to work, which is quite a different thing. But it is 
not easy to find a productive form of labor, and it is particularly 
difficult to force the recipients of relief to execute it. Every one 
knows the barracks-like workhouses of England, the inmates of 
which have to perform work which is degrading by its very use- 
lessness ; such as making ropes out of tow, and then untwisting 
the ropes to reconvert them into tow. 

Far more satisfactory results have been obtained by the agri- 
cultural colonies or settlements in Holland and in Germany. In 
these places the paupers work more willingly ; they do not feel that 
they are pent up in prison, and, above all, their labor is infinitely 
more productive, for most of these institutions almost pay their 
own expenses. Further, and this is the essential aim of all relief, 
many of these needy folks are enabled to emerge from the pauper 
state, and become farmers or even landowners. Fuller details on 
this system and all the other various forms of public or private 
relief may be found in M. Robin's book on Hospitalite et Travail. 

(^) Vagrants and beggars who refuse to work should be confined 
in houses of correction and should be compelled to work; the 
period of confinement should be long enough to allow of the 
exercise of a moral and reforming influence. 

On this matter the French law is absurd. In the opinion of 
the Penal Code it is an offence to have no home or visible means 
of existence ; and every year sentences of a few days of imprison- 
ment are passed on tens of thousands of unfortunates, who are 
guilty of having neither hearth nor home. The kind prison grants 



DISTRIBUTION. 55 1 

them these during their brief sojourn ; but when they leave, what 
can they do but begin again ? Thus they pass their Hfe in a con- 
stant succession of convictions, until their ripe experience of 
prisons turns them into hardened criminals. Not until law has 
established asylums for all paupers will it be able to do away with 
beggars and punish vagabonds ; and then it must beware of 
shutting them up for a few days only, and especially of associating 
them with professional criminals. 

It must not be inferred from our suggestions that the public 
organization of charity should absolutely forbid outdoor relief; for 
that system has the great advantages of being far less costly and 
of not breaking up family life by enforced separation. But, 
generally speaking, public officials are unable to practise this 
form of relief with due discernment, and experience shows that 
in their hands the unworthy members of the poorer classes are 
favored, and that their numbers tend to increase to an unlimited 
extent. 

After a celebrated inquiry which was made in 1834, the English 
altogether abandoned the giving of outdoor relief, and confine- 
ment in the " Union " was prescribed as the necessary condition 
of all public assistance ; since then, however, this rigorous pro- 
vision has been gradually relaxed. We have already observed 
that the French charity boards were established solely for the 
purpose of outdoor relief. The foregoing discussion brings us to 
our last rule. 

Fourthly. Whenever public relief takes the outdoor form, pri- 
vate aid should be made use of as far as possible ; the necessary 
inquiries and the distribution of relief being entrusted to private 
individuals who are willing to help. 

Voluntary workers are always superior to agents who are oflEi- 
cially appointed by the local authorities, as in the case with the 
French charity boards, or who are chosen by committees such as 
are charged with these functions in England. From a felicitous 
union of public relief and of private charity arises the superiority 
of the famous Elberfeld system, an article on which appeared in 



552 PRINCIPLES OF POLITICAL ECONOMY. 

the Revue d"* Economie politique for 1887 from the pen of M. 
Saint Marc.^ 

In all cases, however, outdoor relief should be administered 
under the two following restrictions : — 

Firstly, It should be given not in money, but in kind; for 
example, in tickets for public kitchens, or in food and other 
articles bought by the distributors of relief themselves. 

Secondly. A prior inquiry should always be made, and that the 
investigation should be thoroughly done it is necessary to have 
an office specially devoted to the obtaining of information. There 
exists in Paris an agency established by private initiative, which 
has rendered most valuable service in this respect. 

III. Is Pauperism on the Increase? 

It is a disputed question whether the indigent or pauper classes 
are or are not increasing in number. Naturally, the socialists 
assert that there is an increase, and consider it to be a demon- 
strable fact that the rich are always growing richer and the poor 
poorer. The optimists deny this, and show by statistics, espe- 
cially EngUsh statistics, that the poor are on the decrease. In 
this matter figures are of httle value, for there is no more elastic 
a term than pauperism. An answer to the question must rather 
be found in a consideration of those various causes of poverty 
which we have previously pointed out. We divided the indigent 
or paupers into three classes : those who are prevented from 
working through weakness or infirmities ; those who might work 
if they had a chance, which they have not ; and those who do 
not want to work. 

As regards the first class, the progress of hygiene and of science 
as a whole ought to be able to reduce the numbers of those who 
are stricken with incurable infirmities. At any rate, some of them, 
such as the blind and the deaf mutes, should be put in the way 
of plying a productive calhng. On the other hand, the ranks of 

^ See the English Government Blue Book " Reports on the Elberfeld Poor 
Law System and German Workmen's Colonies" (C. 5341), 1888. — J. B. 



DISTRIBUTION. 553 

the insane are being terribly swollen by several causes, the chief of 
which is the abuse of drink. Another potent cause of pauperism, 
the birth of illegitimate children, is likewise on the increase. 

We must say without hesitation that the second class is exhibit- 
ing a tendency to grow ; the loss of work which results from 
mechanical inventions or from excess of production, the eco- 
nomic crises which spring from the evolution of large production 
and of international competition — these were unknown to our 
fathers, and are the peculiar characteristics of our own time. 

To take the third division : we might be justified in thinking 
that, with the progress of public education and under the influ- 
ence of the more sedentary customs of civilized life, we might get 
^id of the idleness, love of roving, and pure rascality which were 
such potent factors in the social life of the Middle Ages and of 
antiquity, and still retain their power in the East. Yet we must 
not rely too much on the realization of such hopes. Vagabonds, 
tramps, and beggars still exist in our midst in huge numbers, nor 
do they show any signs of growing fewer ; and the occupation of 
" professional beggar " is becoming more lucrative than ever. Out 
of 119,000 offenders who appeared before the French police 
courts in 1886, 33,000 were classed as vagabonds or beggars. In 
Paris there are about 8000 people who take their night's rest in 
the streets or under the arches of the bridges. 

After full consideration, we are led to conelude that, in modern 
society, the causes which tend to develop pauperism are more 
active than those which might effect its diminution. But we will 
not add that pauperism will exist forever and be a constantly 
heavier burden. Unless we are utterly to despair of the future of 
our race, we must hope that some of the above-mentioned causes, 
and perhaps the most powerful of them, will be mitigated by the 
advance of time. Poverty, which arises from individual and 
natural causes, such as the feebleness of old age, disease and ill- 
ness, and physical and moral infirmities, may, perhaps, be relieved 
by a sound system of insurance. But the pauperism which is the 
result of general and economic causes can be put to flight only 
by radical alterations in the present social order. 



APPENDIX. 

THE PUBLIC FINANCES OF FRANCE. 

I. Public Expenditure. 

The constant increase in public expenditure is one of the 
characteristic features of the time. At the beginning of the pres- 
ent century and until the year 1830 or so, the public expenditure 
of France scarcely exceeded ^40,000,000 sterling; it has now 
reached the figure of ^130,000,000, and if we include the sepa- 
rate expenses incurred by the communes and departments, the 
whole will amount to ^160,000,000. Thus, in less than a man's 
lifetime, it has more than trebled. 

We reproduce in an abridged form from M. de Foville's excel- 
lent statistical handbook, La France Economique, a table which 
shows the successive increases of the French budget from the 
days of Saint Louis. 

FRANCS. 

Saint Louis (year 1243) • • 3)700>ooo 

Francis I (year 15 15) 72,800,000 

Henry IV (year 1607) 90,800,000 

Louis XIV (year 1683) 226,000,000 

Louis XVI (year 1789) ^ 475,000,000 

Napoleon (year 1810) 1,007,000,000 

Louis Philippe (year 1840) 1,363,000,000 

Napoleon III (year 1869) 1,904,000,000 

Republic (year 1891, estimated) 3,247,000,000 

Now, the recent phases of this phenomenon may be partly 
explained by the general augmentation of wealth and the fall in 
the value of money ; but the enormous increase of public expen- 
diture cannot proceed from these causes alone. There must be 
554 



APPENDIX. 555 

Others. A full examination of the question may be found in the 
book of M. Wuarin, a professor at Geneva, on " Le Contribuable, 
ou comment defendre sa bourse." (" The taxpayer and how to 
defend his pocket.") We must confine ourselves to the following. 

Firstly, One great cause is the growth of the military spirit 
with all its consequences, i.e. war and an armed peace which is 
as costly as war. Nearly two-thirds of the ^130,000,000 spent 
by the French government are used in paying for past wars or in 
preparing for future wars. Forty million pounds are required for 
the French army and navy estimates, including the so-called ex- 
traordinary estimate, and the army pensions. Further, almost the 
whole of the arrears or interest on the pubHc debt, which are 
^£"44,000,000 yearly, are the result of loans which were made in 
the past to meet war expenses or to pay war indemnities. 

If the man in the moon, or rather an inhabitant of Mars, were 
to visit our planet, and learn that a civilized country like France 
was obliged to spend ^40,000,000 a year to insure its safety, he 
would pity her for having such barbarous nations as neiglibors ; 
but his astonishment would be unbounded if he were further told 
that these neighboring countries, which can justly claim to be as 
civilized as France, feel obliged in their turn to make almost as 
great sacrifices for their own defence against her. Under this 
head the new countries in America and Australia have but trifling 
burdens to bear ; for they have no neighbors, or rather their 
neighbors are (fortunately) savages. As has been sagely observed, 
this enormous inequality in expenses, in their favor, must finally 
give them a decisive economic superiority over our European 
lands. 

Secondly. A second potent cause is the gradual extension of 
the functions of the State, for each item in public expenditure 
corresponds to some function of the State. But one of the most 
disputed questions of the day is the precise determination of what 
duties the State should take upon itself, and how far its action 
should go. We know that the Liberal school would reduce this 
action to the very minimum ; in its opinion the State should con- 



556 PRINCIPLES OF POLITICAL ECONOMY. 

fine itself to the protection of individual liberty by maintaining 
order at home and preserving peaceful relations abroad j in other 
matters individual initiative will be far more successful. 

In his Precis d^ Econo7nie politique, M. Leroy-Beaulieu sums up 
the various shortcomings which in the opinion of the Liberal 
school should lead us to discourage any extension of the functions 
of the State. 

Firstly. In the first place, the State has less initiative and is 
less active than private persons, for it does not feel the spur of 
private interest, and has not to fear competition. 

Secondly. The State has no real superiority over individuals, 
either in ability, or in impartiality,- or even in continuity in its 
plans and actions. This arises from the origin, working, and 
inevitable vicissitudes of any government under any system what- 
ever, but it is especially marked in the democratic regi?ne which 
is now becoming the rule. 

These arguments are not irrefutable. Individuals, no doubt, 
have given the world all inventions, discoveries, enterprises, above 
all, ideas, for a collective body is devoid of ideas. Still, many of 
these projects, — such as the abolition of slavery, of serfdom, of 
corporations, — have been effected by the State, and perhaps 
could not have been carried out by private persons. Yet, without 
requiring the State to enter into competition with individuals, still 
we can and ought to demand this much from it : it should repre- 
sent and guard the collective and social interests against the con- 
stant encroachments of individual interests. That, surely, is a 
large enough task ! 

The school called State Socialists does not accept the Liberal 
school's theory of the "State as policeman." It attributes to the 
State a far higher mission, — not merely the seeing that justice is 
done, but the inauguration of a reign of justice ; hence State in- 
terference can, and ought to be, extended to a host of points in 
our social system. 

Neither of these two schools represents the extremes of their 
respective lines of thought. 



APPENDIX. 557 

Beyond the Liberal school we find the anarchists, who entirely 
do away with the State, and public expenses along with it. Push- 
ing to their extreme consequences the arguments urged by the 
Liberal school, the anarchists proceed to declare that individual 
initiative is perfectly capable of preserving order and security at 
home and abroad. Men are able to govern themselves ; and that, 
indeed, is the si7ie qua non of their freedom. In the matter of jus- 
tice, all crime can be repressed by an exercise of lynch law, and 
lawsuits can be settled by the appointment of arbitrators. Besides, 
the abolition of private property will do away with most offences 
and with all actions at law. The country can be thoroughly pro- 
tected from attacks by the levying of voluntary militia in case of 
need ; and further, the aboHtion of distinctions between nations 
and the blotting out of frontiers (another item in the anarchist 
programme) will inevitably put a stop to all war. 

Beyond the State socialists we find the collectivists, who turn 
the State into the general suppher of all social and economic 
wants. The State will provide for the education of all children, 
will support the aged, will be the only landed proprietor, and be 
the sole carrier-on of all trade and all industry. Then, as all 
individual enterprise will be converted into a public service, and 
all private incomes become salaries, individual expenses will tend 
to be absorbed in the expenditure side of the State accounts. 

According, then, to the pet economic doctrine which a man 
chooses to adopt, public expenses can range from zero up to 
infinity, and it is curious to note that the schools which occupy 
the opposite poles of thought both demand socialism. 

We cannot here incidentally discuss the complex question of 
State interference. It is enough for us to note that all countries 
(England, the land of " self-help," included) are showing an 
increasingly marked tendency to widen the State's sphere of 
action. This is manifested not only in the large development 
of some branches of the public service, such as pubhc education 
or pubhc works, but also in the formation of new State ofiSces, or 
at any rate, of important ministerial departments. Among these 



558 PRINCIPLES OF POLITICAL ECONOMY. 

are offices or boards which deal with agriculture and with trade. 
That which is concerned with labor is of very wide scope ; for it 
superintends manufactures, so as to insure the due observance of 
laws which restrict the hours of labor, or prescribe certain steps 
for the security of the employed and of the public. Besides 
having to deal with factory legislation in general, it has to issue 
statistical reports which relate to labor, such as the excellent 
publications of the Labor Bureaux in the United States. Public 
relief engages the attention of another office ; nor must we omit 
the board of public health, which is concerned with unsanitary 
dweUings, the prevention of epidemics, and the adulteration of 
food. 

Naturally enough, this further extension of the functions of the 
State necessitates a proportionate increase in public expenditure. 
Indeed, it is the second cause which we assigned for that phe- 
nomenon, and it is far more easily justified than the first 
cause, the growth of the military spirit. It is right that the ex- 
penses incurred on behalf of the collective interests should be 
heightened as social organization develops, and as men perceive 
more clearly and appreciate more earnestly the solidarity which 
binds them together. This enlargement of the duties to be per- 
formed by the State might be dangerous if it ever deadened indi- 
vidual energy ; but up to the present the due bounds of the action 
of public authority do not seem to have been exceeded by any 
modern government. In most civilize-d countries the functions 
of the State fall under the following heads : — 

Firstly. The maintenance of order and the administration of 
justice at home. This duty falls, in England, to the Home Office ; 
in France, to the Ministries of the Interior, and of Justice. 

Secondly. The preservation of safety as against foreign powers. 
This is undertaken by the Foreign Office, the War Office, and the 
Admiralty. 

TJw'dly. The furthering of the intellectual and moral develop- 
ment of society. This is provided for by the Education Office, 
and ministries relating to Public Worship and the Fine Arts. 



APPENDIX. 



559 



Fourthly. The development of the productive powers of a 
country. Such resources are superintended by government de- 
partments referring to Public Works, to the Postal and Telegraph 
services, to Agriculture, and to Trade. 

It is difficult to see which of these public functions could be 
subtracted from the list ; on the contrary, it could be easily swelled 
by the addition of departments relating to Labor, to Public Relief, 
and Public Health. 

In any case it would be unjust to saddle so-called State sociaHsm 
with most of the responsibility for public burdens. If from the 
^^130,000,000 sterling which are spent by the French government 
we deduct the ^40,000,000 for the army and navy, the ^40,000,- 
000 on the pubHc debt (which is mainly the outcome of war) , and 
the ^16,000,000 or ^20,000,000 which are the cost of the collec- 
tion of taxes, about ^30,000,000 of pubhc expenses remain over 
for distribution amongst the various offices. When we remember 
that the total revenue of France is calculated to be ^800,000,000 
to ^1,000,000,000 sterling, it scarcely seems excessive for three or 
four per cent of this sum to be devoted to expenses needed for 
the public welfare. Still, it is only fair to add the ;£"3 2,000,000 to 
;£"36, 000,000 which represent the independent expenditure of the 
various departments and communes. Then the proportion of 
the collective expenses to the entire revenue is raised to seven or 
eight per cent. 

II. The Public Revenue. 

Private persons are obliged to regulate their expenses according 
to their income ; the State, on the contrary, usually fixes its re- 
ceipts according to its expenditure. As, in France, for example, 
it requires ^130,000,000 for the accomplishment of its various 
functions, that is the very sum it will ask for from its taxpayers. 
The government has an incontestable right to make this demand, 
for it is just and indispensable that each member of every society 
should bear his share of expenses of a public nature. Of late 



560 PRINCIPLES OF POLITICAL ECONOMY. 

years several learned treatises have been published, especially in 
Germany, in Austria, and in Italy, on the economic theory of 
taxation, viz, : on the determining whether a tax is the price of a 
service rendered by the government. A complete summary may 
be found in Mazzola's Dati scieiififici delle fina-nze. We, however, 
must proceed with our general discussion. 

It is not an easy matter to levy ^^i 30,000,000 on a nation (or 
more than ^160,000,000, if we reckon the separate expenses of 
communes and departments), for that makes no less than ^4 a 
head for each Frenchman. Till the present day, statesmen and 
financiers have applied all their ingenuity to discovering sources 
of public revenue which shall burden the taxpayer as little as need 
be, and be imperceptible, if that can be possibly effected. Now, 
however, the tendency is to proceed on quite a diiferent principle. 
We will now pass under review all the conceivable sources of 
public revenue. 

Section i. The Revenue derived from State Lands. 

If the State were in the position of a private individual who 
has his own property, it might perhaps provide for all public 
expenses out of the revenue from its own possessions, and have 
no need to call upon the taxpayer ; for it would be self-sup- 
porting. 

Such was partly the case under the feudal system, and that state 
of things still subsists in semi-barbarous societies in which the 
private fortune of the sovereign and the property of the nation 
are scarcely distinguishable. The sovereign princes of India, 
like the former kings of France, support their armies from, and 
themselves depend in large measure on, the revenues of their own 
domains. But in civilized countries State lands, as a rule, have 
been reduced to a mere shadow of their former extent. In 
France nothing remains to the State save forests and a number of 
unproductive tracts. The gross returns from the whole are not 
more than a couple of milUon pounds, and the necessary expendi- 



APPENDIX. 561 

tures on these estates would reduce that sum by half. That is a 
mere drop in the ocean of public expenses. 

However, in some countries, particularly in Prussia and the 
other German States, the revenue from the crown domains 
amounts to a good many miUion pounds ; but these estates are 
not merely forests, but also include farms, mines, and factories. 

If the current theories of land nationalization are ever actuallj' 
applied, — for instance, if the governments of the United States and 
of the Australian colonies were to decide to reserve for themselves 
the proprietorship of public lands, and were only to grant them 
to private persons as temporary holdings, — in that case the future 
might witness the formation of State domains of large extent and 
the consequent abolition of all or some taxes. That is one of the 
chief arguments adduced in favor of the systems of land national- 
ization. 

Section 2. Revenues proceeding from Various Industries and 

Monopolies. 

For the State to be self-supporting, we are not obliged to con- 
ceive it as possessing estates and holding the position of a land- 
owner who lives on the income he derives from his property. 
We can equally well suppose that it founds an industry or starts a 
lucrative business, and thus earns its living like any ordinary person. 

This branch of the public revenue is of very considerable 
importance, and tends to increase daily in proportion to the 
development of State socialism. In France, in particular, the 
State carries on industries of the most varied kinds. It manu- 
factures money (in the shape of coin), tobacco, powder, playing- 
cards, porcelain (such as the Sevres ware), and carpets (for 
instance, the Gobelins) . In its capacity of printer it carries on 
the Imprimerie Nationale, and as a journalist it conducts the 
Journal Officiel. It works a partial system of State railways, and 
takes charge of all postal and telegraphic business. The returns 
from all these sources give a gross product of ^30,000,000 ; but 
as heavy expenses have to be met, the net product is far smaller 



562 PRINCIPLES OF POLITICAL ECONOMY. 

and does not exceed ;^i 4,000,000. We give two of the principal 
items : — 

GROSS PRODUCT. NET PRODUCT. 

Tobacco (1884) 378,000,000 f. 305,000,000 f. 

(about ;^i 5,000,000) (about ;!^ 1 2,200,000) 

Post-office and telegraphs (1885) . . 167,000,000 f. 30,000,000 f. 

(about ^6,600,000) (about ;,^i, 200,000) 

Thus very large profits are made from the tobacco industry by 
the side of a very small return from the working of the postal 
and telegraphic systems ; for the State rightly strives to make large 
gains in the former business, but only small profits from the latter. 

The particular businesses carried on by the State vary in dif- 
ferent lands. Thus in some countries private companies are the 
owners of the telegraph lines, whereas in others, for example, in 
Germany, the State works most of the railways and some factories 
to boot. Again, municipal authorities often take charge of the 
gas and water supply. 

It has been recently proposed that the State should assume the 
control of a commercial enterprise which should yield at least 
^40,000,000 a year, namely, the sale of brandy. This scheme 
was suggested by M. Alglave, professor of Financial Science in 
Paris, but it has not been tried in France because the owners of 
small vineyards cannot be prevented from making brandy for 
themselves. However, other governments have embarked more 
or less deeply in similar enterprises. 

We have now to ask whether this class of revenue, like the 
revenue derived from State lands, frees the taxpayer from all 
burdens. Our answer must be a twofold one. If this industry 
in question is conducted under free competition, and the profits 
made by the State are no higher than those that could be 
obtained by any private firm, then indeed no tax is really levied. 
But if the particular industry is managed under a systetn of 
monopoly, i.e. if the government prohibits all competition by 
private persons and makes use of its position to sell the article 
for a far higher price than the cost-price, then the additional price 



APPENDIX. 563 

that the consumer has to pay is clearly a tax u. disguise ; but the 
fact that it is disguised prevents the consumer from perceiving 
it. Now, most of the industries carried on by the French govern- 
ment, or at any rate the most important of them (tobacco, powder, 
post-office, and telegraphs), are worked under this monopolist 
system. 

Section 3. Indirect Taxes. 

Since the income that modern governments derive from the 
State lands and industries is far from sufficing requirements, 
further sources of revenue must be sought for. The laying of a 
duty on certain commodities was long ago found to be an impor- 
tant mode of obtaining revenue. This is certainly a tax, for the 
consumer will have to pay it in the shape of enhanced price, but it 
possesses two advantages. In the first place it is disgicised in the 
very price of the article, and thus escapes the consumer's notice ; 
there are few people who on buying sugar at so much the pound 
can tell what portion of the price constitutes the tax. Secondly, 
the tax is in a manner optional, for it is only paid on purchase of the 
article on which it is levied, and every one is free either to abstain 
from buying it or to purchase it in whatever quantity he wishes. 

Under the same heading must fall customs duties which, 
legally speaking, do not differ from indirect taxes. Further, they 
appear to have the special advantage of causing payment of the 
tax to fall not on the citizens of the country, but on foreigners. 
That, if true, would be an ideal form of taxation, but as we have 
previously seen, the ideal in this case is not the real. Including 
customs duties, the indirect taxes in the French budget for 1884 
amounted to rather over \;^40,ooo,ooo, or 1,074,000,000 francs, 
more than a third of the budget. The returns from the principal 
French indirect taxes are shown in the subjoined table : — 

Wines, spirits, and other beverages (1886) 439,000,000 f. 

Sugar (home grown and colonial) (1886) 138,000,000 f. 

Salt (1886) 32,000,000 f. 

Coffee (1885) 107,000,000 f. 

Petroleum and schist (1885) 27,000,000 f. 

Conveyance of passengers and goods by express trains (1886) 92,000,000 f. 



564 PRINCIPLES OF POLITICAL ECONOMY. 

Section 4. Taxes on Legal Documents and Various Incidents of 

Daily Life. 

There is a limit to the number of the commodities on which a 
duty can be imposed ; for they require to be at one and the same 
time articles which are consumed in large quantities, so that the 
tax shall have some scope, and not to be indispensable to exist- 
ence, for that would give a harsh character to the tax. Instead, 
therefore, of burdening commodities, financiers have resorted to 
the plan of taxing certain legal processes incidental to life, — such 
as successions, receipts, lawsuits, conveyance, etc.,- — by means of 
registration duties and stamp duties. From the governmental 
point of view these taxes have the further advantage of affecting 
the taxpayer only indirectly, or, at any rate, at the moment when 
he feels them least. The man who receives an inheritance, par- 
ticularly if it is a windfall, can very well bear to give up a portion 
of it to the State. The man who buys an estate is previously 
aware of the amount of succession duty that he will have to pay, 
and regulates accordingly the price he has to give. 

The penny stamp, which is the equivalent of the stamp required 
in France for every receipt above ^/6, does not inconvenience 
the buyer, because the trader usually pays it ; nor the shopkeeper, 
because he raises his price in proportion. From an economic 
point of view, however, such duties, especially succession duties, 
are seriously inconvenient. In the French budget for 1886 they 
amounted to over ;,^2 7,000,000, or 682,000,000 francs, more than 
a fifth of the budget. 

Section 5. Direct Taxes. 

The sources of public revenue we have now studied are not 
fertile enough to meet all expenses. After all, then, we are com- 
pelled to touch the taxpayer directly by a personal and specific 
tax. Disguise is no longer possible ; the government demands 
from each taxpayer a particular sum ; and, if he refuses to pay, the 



APPENDIX. 565 

ordinary methods of legal execution, i.e. distraint, are employed 
against him. Thus, of all classes of taxes this is the most burden- 
some and vexatious ; and governments which have reason to fear 
the effects of unpopularity avoid this method of obtaining money 
as long as they possibly can. For example, after the war of 1870, 
France required to raise an additional sum of ^28,000,000 a 
year ; and almost the whole of this amount was levied by means 
of indirect taxation. 

But everything now points to a radical change in men's opinions ; 
and, curiously enough, it is the very desire for popularity that 
induces present-day governments to reduce indirect taxes, and to 
seek to obtain the greater part, or, if need be, the whole, of the 
public revenue from direct taxation. We must explain this singu- 
lar change of tack. 

The object, nowadays, is not so much to find the most produc- 
tive or the least harassing tax, as to light upon the one which is 
most in conformity with justice. Nay ! there is even an exces- 
sive tendency to regard taxation less as a means of furnishing 
the government with its necessary supplies, than as a mode of 
setting right the unjust distribution of wealth. In fact, the fis- 
cal standpoint is being abandoned for a social standpoint ; and 
viewed in that light direct taxation is incontestably superior 
to any other form. As a matter of fact, in virtue of its personal 
character, it is the only mode of levying money which allows of 
the apportioning of the imposed burdens to the fortunes of those 
on whom the tax falls, and which enables the financier to cause 
the rich to pay more than the poor. No doubt, even with indirect 
taxes, the rich man will have to bear a heavier burden than the 
poor man, simply because he consumes more of the taxed article ; 
but the man who has an income of ^400 a year does not consume 
a hundred times more salt, nor even a hundred times more salt or 
sugar or wine, than the workingman who earns ^40 a year, espe- 
cially if the latter has a numerous family. Of course, the wealthy 
man may spend a hundred times more money on wine, from the 
fact that he drinks better wine; but our words were, consumes 



566 PRINCIPLES OF POLITICAL ECONOMY. 

more. Now, duties are proportional, not to the value of the 
articles consumed, but only to the quantity. There is just the 
same duty on Chateau-Lafitte as there is on public-house wine ; 
and, however unjust this equality may seem to be, there is no 
practical way of rectifying it, unless, indeed, the comptrollers of 
indirect taxes are to taste each sample of wine before they tax it. 

Further, from a moral and political point of view, the personal 
and disagreeable nature of this tax is an advantage ; for it is right, 
nay, it is indispensable, that every citizen of a free country should 
be compelled to feel directly, and in a manner which he cannot 
disregard, the consequences and results of all expenditures made 
by the government, i.e. by his chosen representatives. That is the 
soundest system of political education. 

The most natural form of direct taxation is a tax laid in pro- 
portion to a man's income. If each citizen's income could be 
calculated exactly, a simple sum in arithmetic would show the 
percentage that ought to be levied on that income in order to 
provide for the public expenses ; and then we might seem to have 
a fiscal system of perfect simplicity and irreproachable justice. 

But this principle is far from receiving universal approval, and 
is disputed by two sets of opponents. 

The first class declares that the tax should be laid not on 
income, but on capital. We may accept that statement for a few 
articles of wealth which yield no income, — such as country man- 
sions, picture-galleries, diamonds, etc., — though these are not 
of great importance. But the notion is altogether illogical when 
apphed to wealth in general ; for, in the case of most classes of 
wealth, the value of the capital is determined only by the amount 
of the income. It would, therefore, be much simpler to tax in- 
comes directly. It has been urged that capital, which is wealth 
already formed, should be taxed in preference to an incom.e which 
is wealth in process of formation. In our opinion, however, it 
would be radically unjust to exempt from taxation the gains which 
are made by a barrister or an opera-singer, even when they cease 
to possess any capital. Moreover, the valid points in this criticism 



APPENDIX. 567 

could be easily met by taxing incomes derived from capital at a 
higher rate than incomes proceeding from labor. 

The other class of opponents demands that the tax shall be 
progressive, and not proportional ; in other words, not only the 
amount of the tax, but also the proportion of the tax, ought to 
vary according to respective fortunes. If, say, the proportion is 
5 per cent on an income of ^400, it should be lowered to i per 
cent on an income of ^40, and be raised to 25 per cent on 
;^4000. The reason assigned is, that the privation that every tax 
causes the taxpayer to suffer is far greater for the poor man than for 
the rich man. For the man of means who has ;,/^40oo a year, a 
tax of 10 per cent, or a deduction of ^400, falls only on that por- 
tion of his wealth which is over and above the bare requirements 
of sustenance ; but those very means of subsistence are drawn 
upon when a tax of 10 per cent, or ^4, is levied on the man whose 
income is a mere £^\o. The observation is true enough, and may 
be confirmed by the fact that, usually speaking, social and collec- 
tive causes contribute more largely to the formation of large than 
of small fortunes ; the former, therefore, may be called upon to 
pay society more than the latter do ; in fact, it is a species of 
debt which they have to redeem. No objection of principle can 
be urged against progressive taxation, if its only aim is to estab- 
lish a proportionality which is more accurate than a purely arith- 
metical one j moreover, it is already in force in some of the Swiss 
cantons. But the plan cannot be approved if, as the socialists pro- 
pose, it is to be used as a levelHng instrument by means of which 
the wealthy classes are to be crushed with taxation, and the classes 
who Hve on their own labor completely freed from all burdens. 
We ought not to aim at an equalization of men's lots ; the sys- 
tematic cutting down of all fortunes which exceed an arbitrarily 
fixed limit would simultaneously maim all productive activity; 
and to relieve the wages- earning classes of all share in expendi- 
ture arising from the conduct of public affairs would have deplor- 
able political results. For under a system of universal suffrage 
it is these very classes that really govern ; and the first principle 



568 PRINCIPLES OF POLITICAL ECONOMY. 

of government is, that those who govern should bear the responsi- 
biUty of their acts. 

Moreover, there are further difficulties as to the application of 
a general tax on income. It is extremely hard to tell precisely 
what a man's income is ; if we are to abide by the declarations 
made by the taxpayers, there are strong reasons for thinking that 
the honest will have to pay for the dishonest, a result that would 
be scarcely conformable to our idea of justice ; if inquiries are to 
be made as to individual fortunes, the measures necessary for such 
an investigation of the secrets of private life would be exceedingly 
harassing, and might prove to be odiously tyrannical. Further, if 
the State wishes to draw all its revenue from an income tax, it will 
have to take a large share of each man's fortune. Let us sup- 
pose that the collected incomes of all Frenchmen amount to 
;^i, 000,000,000 ; in that case, in order to obtain the ;^i 60,000,000 
they require, the government and the communes would have to 
put a tax of 1 6 per cent on every man's income, — in other words, 
deduct rather more than a sixth part. But such a levy of ;£i6 
out of every hundred would be literally crushing to the man of 
moderate means. If, as is probable, the poor, and perhaps also 
the working classes, were exempted from the tax, the share that 
the well-to-do classes would have to pay would be three or four 
times higher than the above-mentioned figure. 

Notwithstanding these difficulties of application, the income tax 
is the ideal mode of taxation which we should strive to reach ; it 
would be premature to require that tax to supply the whole of the 
public revenue, but it should contribute a large and ever-increas- 
ing share as compared with the other resources of the treasury. 
Its partial application would gradually overcome the difficulties 
we have referred to. The tax is already in operation and works 
well enough in a large number of countries, especially in England, 
in Germany, in Switzerland, and in Italy. 

In France there is no one general income tax, though that may 
come soon, but there are ^«?z'^;'^/ taxes which are laid only on certain 
specified sources of income. We will state the five principal ones. 



APPENDIX. 569 

First. The la7id tax, which is levied on the income yielded by 
all landed property, whether built on or not ; this was fixed 
according to a general survey of all the lands in France, which 
took forty ye'ars to make and would now need to be done all over 
again. 

Second. The door and window tax, which falls especially upon 
houses. Its curious name arises from the fact that the value of 
the houses is calculated according to the number of openings in 
them, though other matters are included in the estimate. After a 
laborious statistical valuation this tax is to be recast. 

Third. A tax on personal and movable pi^operty. It is this 
that most closely resembles a general income tax, for it is levied 
on the general income of the taxpayer ; but, instead of being cal- 
culated directly on incomes, it is rated according to the house- 
rent paid, or according to the letting-value for those who live in 
their own houses. Besides the general tax on incomes, the personal 
property tax includes a poll tax (ranging between \s. and /\s. 
per head), which falls on every French citizen without regard to 
proportionality. But the smallness of the sum minimizes its irk- 
someness. 

Fourth. A tax on trade lice^ ises, which affects all persons en- 
gaged in manufacture or trade of any sort. This again differs 
from an actual income tax by being estimated not on the profits 
of the business, but on rather complex factors ; e.g. the nature of 
the industry, the population of the town, the value of the premises, 
etc. 

Fifth. A tax on stocks. This is of quite recent date, being 
first imposed after the war of 1870. It is laid on the returns 
given by all stock save government securities ; that is to say, all 
shares and debentures quoted on the Bourse. The tax is four per 
cent on shares assigned to specified parties, and double that 
amount when they are payable to bearer. 

By adding to these five direct taxes some others of less impor- 
tance (such as those on horses and on carriages), we come to a 
total of some ;£"2o,ooo,ooo. 



570 PRINCIPLES OF POLITICAL ECONOMY. 

We must make a few remarks on the foregoing. Taxes may be 
divided into direct taxes at a propoi'-iional rate {iinpots de reparti- 
tion) when the amount to be collected is fixed in advance by law 
and is then divided up amongst the taxpayers, and taxes at a 
fixed rate {ifupots de quotite) when each man's share is fixed by 
local commissions, but the total has no limit assigned. Our first 
three direct taxes are of the proportional kind ; the tax on trade 
licenses is at a fixed rate. It is clear that taxes which are rated 
on each individual citizen are far more elastic than taxes at a pro- 
portional rate, which are almost invariable in their returns. In the 
budget the tax on stocks comes under the head of indirect taxa- 
tion, for it is not levied on specified individuals ; it falls on the 
stock itself and not on the capitaKst who holds it. 

In the above we have confined ourselves to the public revenue 
of the State. But the revenue of the various communes and 
departments is also of great importance and reaches the sum of 
^^36,000,000, though sometimes State and local receipts are 
devoted to the same purpose. The principal sources of this 
local revenue are the octrois (or city tolls), which yield more than 
;£"! 1,000,000 (half of which is f ^ Paris alone) and the "extra 
pence," {^centimes additionnels) wl: ch give more than ;^i 4,000,000. 
This latter levy is a percentage which is added to the principal of 
the four direct taxes, and is collected at the same time as they are. 
The octrois need no explanation ; latterly they have been sharply 
attacked by similar arguments to those which have been urged 
against indirect taxes. 

III. The Public Debt. 

If most modern governments are unable to meet their ordinary 
expenses, for a stronger reason, still less are they able to supply 
the requisite funds for an extraordinary expenditure, say, for a 
war, or for large public works. Often, then, they are obliged to 
follow the example of all persons who live above their means, i.e. 
they run into debt. Hence the origin of public debts. There is 



APPENDIX. 



571 



not a single civilized country which has not a debt of some size or 
other; and for a barbarous nation to contract such liabilities is 
the usual proof that, to use the diplomatic phrase, it has entered 
the concert' of European peoples. In fact, pubHc debts have 
constantly increased in a greater and more startling degree than 
public expenses. A century ago the total was practically insignifi- 
cant; the amount for the whole world is now reckoned to be 
;^6,ooo,ooo,ooo. Among all debt- owing countries France holds 
the bad pre-eminence, for its debt is more than ^1,200,000,000; 
and next to it come England and Russia. 

There are certain exceptions to this ; for instance, the enormous 
development in population and wealth of the United States, and 
their almost complete exemption from military expenditure, have 
overfilled their budgets with large surpluses, which they do not 
know how to dispose of. 

In spite of the apparent ease of the task, it is somewhat difficult 
exactly to calculate the capital of the French pubhc debt. The 
registered debt {rentes mscrites) is divided into 435,000,000 
francs' worth of 3 per cent stock, which at that rate stand for a 
nominal capital of 14,500,000,000 francs ; 305,000,000 francs of 
^\ per cents, representing a capital of 6,788,000,000 francs; and 
1 18,000,000 francs of redeemable 3 per cents, representing a capital 
of 3,937,000,000 francs. Thus the total comes to 858,000,000 
francs of stock, or a capital of rather over 25 milliards ; in other 
words, a little more than ;2^ 1,000,000,000 sterling. This is the sum 
that the State acknowledges it owes ; it is entered on the stock 
certificates, and would have to be paid, if ever the government 
wished to refund the capital, which, we shall see, it is not bound 
to do. However, the government has by no means received or 
spent the whole of this money ; for it has the curious habit (which 
we shall presently explain) of always borrowing below par, i.e. it 
asks for a far smaller amount than that for which it confesses 
itself to be a debtor. 

To these 858,000,000 francs of actual stock we must add rather 
more than 200,000,000 francs of interest, which represent repay- 



5/2 PRINCIPLES OF POLITICAL ECONOMY. 

able capital in the shape of treasury bills, floating debt, funds 
deposited by savings banks, and securities deposited by officials in 
charge of public moneys. This capital is even more difficult to 
estimate than the above ; for the interest includes the repayment 
of such capital under the form of redemption. If we reckon this 
capital to be rather less than ^200,000,000, the entire debt would 
be 30 milliards of francs, or ^1,200,000,000 sterling. The total 
reached by M. Leroy-Beaulieu is something like ^100,000,000 
more, but he capitalizes the arrears on civil and army pensions ; 
yet it would be quite as reasonable to capitalize all government 
salaries, and add that capital to the public debt. 

However enormous these figures may seem (and we should be 
the last to dispute their verity), we must remark that the total 
income of France is calculated to be about ^^i, 000,000,000, and 
its entire wealth ;£8,ooo,ooo,ooo. If a private person, say a 
manufacturer, earns ^1000 a year, and possesses a capital of 
;3^8ooo, we should not think his position at all desperate, or even 
serious, if he contracted debts to the tune of ;^i20o. 

We must now study the origin of these public debts and the way 
in which they are wiped out. 

Section i. Public Loans. 

When a government is in need of money, it behaves like any 
private person ; it applies to capitalists in order to borrow from 
them the requisite sum, and promises them a certain interest in 
return. But three characteristic differences distinguish pubhc 
loans from those effected by private individuals. 

Firstly. The State, in common with municipalities, large com- 
panies, and all institutions which have recourse to public loans, 
does not bargain with any capitalist as to the sum it requires and 
the interest it ought to pay. It offers for 'sale stock, which bear a 
specified interest and are to be obtained at a price which it fixes 
beforehand. It is clear that this must harmonize with the actual 
rate of interest in the market for capital ; for, otherwise, no buyers 



Appendix. ^73 

would be forthcoming. Say the government needs ;£"40,ooo ; 
then it issues stock at 5 per cent interest, and fixes their price 
according to the state of its own credit and its hopes of the more 
or less ready answer of capitalists to its appeal. 

Secondly. The State usually borrows by means of irredeemable 
stocky or " perpetual " loans ; i.e. the capital of the debt is never 
payable on demand, and the State reserves to itself the right of 
non-payment if that course seems fitting. At first thoughts we 
might be inclined to be surprised that lenders would accept such 
a clause ; but a Httle reflection shows that capitalists who lend to 
a government do so not for the purpose of having their money 
repaid, but for the purpose of investment ; in other words, in 
order to obtain a secure income. A certificate of irredeemable 
stock perfectly fulfils such a condition ; and, if at any given moment 
the capitalist wishes to get his money back, his course is simple 
enough : he has but to sell his stock on the Bourse. 

Thirdly. The State generally borrows below par^ i.e. it acknowl- 
edges itself to owe a larger sum than it has actually received. 
Take a government which could easily borrow at 5 per cent ; it 
might therefore issue loo-franc stock bearing an interest of 5 
francs per cent, and ofler them for sale at 100 francs, i.e. at par,. 
That would be the easiest way ; but the French government usu- 
ally proceeds in another fashion. It prefers to issue loo-franc 
certificates of stock yielding an interest of only 3 per cent ; but it 
will never dream of trying to sell such certificates for 100 francs, 
i.e. at par ; for no lender would come forward under those condi- 
tions. No ; it offers the stock for 60 francs, which is just the same 
to the lenders as the previous operation ; for 3 francs' interest on 
60 francs is an investment at 5 per cent. In fact, this plan will 
be even better for the lender ; though he pays only 60 francs, he 
receives in exchange a security of the nominal value of 100 francs ; 
and the real value of this stock may reach or approach the nomi- 
nal figure, if the credit of the government is strengthened. Thus, 
the English 3 per cents have sometimes been quoted at par, or 
even at a small premium. 



574 PRINCIPLES OF POLITICAL ECONOMY. 

But the method is certainly difficult to explain from the point 
of view of the State ; for it is not only wonderfully complex, but 
it closely resembles the loans made to young men of family by 
money-lenders, when the total sum received is not more than half 
or three-fourths of the nominal amount. Still, as in virtue of the 
qualifying clause referred to above, the government is not bound 
to repay the money, it is of little consequence whether it is exag- 
gerated or not. The point of importance is that the interest shall 
be as low as possible. In fact, its advantages with regard to in- 
terest are the only excuse for this method of doing business ; for 
it is probable that the lender may be less severe as to the condi- 
tions of the loan if he anticipates that his stock will rise in value. 
Thus, he might be willing to pay 80 or 85 francs (instead of 60) 
for this 3 francs per cent stock, which would come to not more 
than 3-^ per cent interest. 

Still, whatever arguments may be urged for it, this plan of 
negotiating loans should be altogether condemned on principle ; 
for it renders all future repayment of the debt either impossible or 
ruinous for the State, and thus practically prevents any method of 
conversion. 

Passing from the differences between pubhc and private loans, 
we must observe that the State has the choice of three modes of 
issuing its stock. 

First. It may deal directly with influential banking houses, and 
obtain from them the necessary money at a fixed price. This is 
the simplest, and was formerly the almost universal, method. 

Second. It may appeal directly to the public by throwing open 
a public subscription through the whole country on an appointed 
day. This has been the usual plan adopted in France since the 
Second Empire, and it possesses certain advantages. The extent 
of the market thus afforded makes it easier to negotiate loans for 
large sums, such as the successive loans for 2 and then for 3 
milliards of francs which were required for the payment of the 
war indemnity to Germany. The loan is " classed " immediately ; 
in other words, the stock certificates go straight into the posses- 



APPENDIX. 575 

sion of the persons who are to hold them ; whereas bankers are 
middlemen, who take the stock merely to sell them again at a 
profit. Finally, when loans are thus publicly issued, they are made 
to fulfil the somewhat theatrical purpose of manifestations of popu- 
lar opinion and patriotic feeling. Thus, the prestige of the French 
government and the credit of the State were greatly raised by the 
fact that the loan issued after the Franco-German war was sub- 
scribed for forty times over. The disadvantage of the method is 
that in order to achieve startling success from the political point 
of view, the State usually offers terms which are too favorable to the 
lenders, and consequently harmful to itself. 

Third. The stock may be sold directly on the Bourse, day by 
day, and according to requirement. This was done some years 
ago with the loans which were intended to meet the expenses of 
the great public works in France. From a political aspect this 
proceeding errs by being partly secret, and the country is not 
made aware of the expenditure in which it is being involved. 
The public does not suspect it ; hence the fondness which the 
government shows for this method on certain occasions. 

Section 2. On the Extinction of Public Debt. 

According to Jefferson, the American statesman, one generation 
should only have the power of contracting a debt provided that it 
repays it during its own hfetime, i.e. within thirty or forty years. 
The saying is an admirable one ; for it is overwhelmingly unjust 
that one generation should be able to burden all generations to 
come with the consequences of its own folly. 

Hence, a wise government should alwaj^s borrow by means of 
redeemable stock ; it should undertake to repay the whole of the 
capital borrowed within a period approximate to that just suggested, 
or at any rate within a century, at the very outside. If the period 
is long enough, a very small redemption premium (say \ per cent 
of the capital, or even less) will be sufficient entirely to repay the 
whole capital, so wonderful is the power of compound interest. 



5/6 PRINCIPLES OF POLITICAL ECONOMY. 

Thus, the redemption charge does not add very much to the 
charges due to interest, and the priceless advantage is obtained 
of the future being left unshackled. On this plan a certain 
number of certificates of stock, which are drawn by lot, are repaid 
yearly. This number is very small at first, but is allowed to 
increase according as the diminution of the capital and the con- 
sequent diminution of the interest allow of the disposal of larger 
sums. 

Unfortunately, most governments, with France as the arch- 
offender, practise the deplorable custom of borrowing by means 
of irredeemable stock. In fact, the French public are now so used 
to the habit, that the attempt made some years ago to introduce 
redeemable funds failed to succeed, and had to be abandoned. 
It is somewhat exasperating to note that France, the very State 
which arrogates to itself the right of borrowing by means of irre- 
deemable stock, refuses to allow the district communes and the 
departments to resort to such measures, its plea being the interests 
of the future ! In fact, the French departments and municipalities 
can only borrow by means of debentures which have to be re- 
deemed within a period named by the law authorizing the loan ; 
in other words, they have expressly to undertake to repay the 
loan, gradually, by means of annuities, within the space of twenty, 
thirty, or forty years. 

Even if a government is accustomed to borrow by irredeem- 
able stock, none the less it can, and ought to, strive to extinguish 
its debt, or, at any rate, reduce it by degrees. It can do this by 
two ways : it can reduce the capital of the debt, which is called 
redemption ; or it can reduce the interest on the debt, which is 
called conversion. Before we speak of these, we must mention a 
third method which is sometimes spoken of, i.e. consolidation. 

Consolidation does not by any means reduce the national debt ; 
it merely transforms a debt which is payable at short notice into a 
debt which takes :he shape of irredeemable stock, the capital of 
which, therefore, is never payable on demand. Besides the loans 
which it obtains by issuing irredeemable stock, a method it em- 



APPENDIX. 577 

ploys only on important occasions, the State constantly meets its 
current expenses by small loans in the form of treasury bills, 
which are notes payable within four or five years. These bills, 
and other liabiHties of a s.imilar nature, constitute what is called 
\}cit floating debt ; and this sometimes grows so large that when the 
bills fall due the government may find it awkward to meet its 
engagements. Now, when the State turns this floating debt into 
a consolidated debt, the process is termed consolidation. It is a 
financial expedient which is sometimes necessary, but none the 
less it is a sorry method. 

To turn to redemption ; the term itself is not a happy one, for 
redemption implies a repayment of the debt. But the operation 
now under notice is effected merely by buying on the Bourse (or 
Exchange), at the current rate, as large a quantity of stock as 
the authorities propose to redeem ; the stock certificates are then 
destroyed, being thrown into the fire, or else cancelled. 

The old method was far more complicated. The sum that was 
to be applied for redemption in each successive year was paid 
into a special office called the redemption (or Sinking Fund) 
office. These moneys were certainly employed in the purchase 
of stock, but the office did not destroy the certificates ; on the 
contrary, it kept them, and appHed the resulting interest to the 
purchase of further stock, the interest on which was turned to 
the same purpose. It was hoped that through compound interest 
this system might produce wonderful results. As a matter of fact, 
the only consequence was the formation of a sort of reserve, which 
the government appropriated whenever it required it.^ More- 
over, the present plan of cancelHng certificates which have been 
bought has the same results as regards compound interest, and 
does not lead the government into the same temptation. 

It is usually more convenient for the State to adopt the cancel- 
ling plan than to reimburse the stock, for that would have to be 

1 This is exactly what used to happen with the English Sinking Fund. 
See Ricardo's speech of 1823, quoted in his Letters to Malthus^ p. 160. 
-J.B. 



57S PRINCIPLES OF POLITICAL ECONOMY. 

done at par, i.e. a sum would have to be paid equal in amount 
to the nominal value of the stock ; whereas on the Bourse such 
securities can generally be purchased below par. At present the 
3 per cents are at 95, but they have been much below that. When 
redemption is practised continuously and energetically, it quickly 
produces very large results, the best example being the extraor- 
dinary reduction of the United States debt by the use of this 
method. 

Unfortunately, a prior condition is that the budget should regu- 
larly and constantly show a surplus, but in most modern States 
there is a deficit. In such circumstances it is useless to think of 
redemption, and it is then simply a sham to resort to partial 
redemption, as is done in France. What is the object of redeem- 
ing with the right hand and borrowing with the left? 

We now come to conversion. No doubt, it is vexatious for a 
government to have to abandon all hope of extinguishing the capi- 
tal of its debt, but the feeling of sorrow need not be a deep one ; 
for, after all, this capital is only a financial fiction, seeing that it is 
never payable on demand. The only real charge on the public 
debt is the interest due on it, and that the State cannot avoid 
paying. Reduction of the interest, then, is as serviceable as 
reduction of the capital ; but how can it be done ? We might 
imagine that stockholders would never wilhngly accept a reduc- 
tion of the rate of interest that has been promised them ; nor 
can the State reduce it in its official capacity and against the will 
of holders of funds, for that would mean a failure to meet its 
engagements, — in a word, bankruptcy. Is the problem, then, 
insoluble ? On the contrary, it can be easily worked out in the 
following manner. 

Some years ago the French 5 per cents were converted into 4I- 
per cents ; the stock then stood at 107 ; in other words, was sold on 
the Bourse at 7 francs premium, having been as high as 117 a few 
years before that. The government addressed the fundholders 
after this fashion : " We offer to you the choice between the two 
following courses : either you must be content with \\ per cent 



APPENDIX. 579 

interest for the future, or we shall pay back the capital we owe 
you, at par, i.e. at loo francs." For it must be remembered that 
though the State is not obliged to pay back the capital of its 
debts, it has the right to do so, if it wishes. The alternative it 
offers is, therefore, a sound one. Nor ought we to say that the 
French government acted harshly in paying back at loo francs 
stock which was worth 107 francs; we must not forget that this 
stock was issued after the Franco-German war at Zt^ or 84 francs, so 
that this offer of reimbursement at 1 00 francs meant that the State 
paid back 16 or 17 francs more than it received, and that the 
fundholder got 16 or 17 francs more than he lent. This, of 
course, premises that the stock had not changed hands during the 
interval. 

Now, which choice shall the fundholder make ? If he elects to 
be bought out, he loses on the present value of his stock, which 
is worth more than 100 francs ; he will probably lose also on the 
future value, for if the credit of the State is maintained, that 
stock, even when converted, will most likely be worth more than 
100 francs. Now, if he had a chance of finding for the hundred 
francs to be returned to him as safe an investment and yielding 
more than /\\ per cent, say in first-class government bonds, in 
municipal debentures, or in railway shares, he might insist on hav- 
ing his money repaid. But if the minister of finance knows his 
business properly, he will have proposed this conversion at a time 
when quotations are high, and it is therefore impossible to invest 
in sound securities which bring in more than 4 per cent or \\ per 
cent at the outside. Thus, on the one hand, the fundholder can- 
not get from his money a higher rate of interest than is offered 
him, and on the other hand, reimbursement would cause him loss ; 
he will therefore accept the proposed reduction of interest, though 
perhaps with a wry face. Though this conversion of the 5 per 
cents was not made at precisely the best time, yet it was almost 
unanimously accepted by the stockholders. As at that time the 
arrears of interest of these 5 per cents amounted to 340,000,000 
francs (^13,600,000), the reduction of one-tenth of the interest 



580 PRINCIPLES OF POLITICAL ECONOMY. 

on each holding of 100 francs meant an annual saving of 34,000,000 
francs (^^1,360,000)0 

Several countries, the United States and England in particular, 
practise conversion in a methodical and successful manner. Thus 
the interest England pays on her debt used to be 3 per cent ; it 
is now reduced to 2| per cent, and is destined to be lowered to 
2J per cent. 

The many governments which have reigned in France have 
made numerous conversions, but most of them have been badly 
managed, and some of them have actually led to an increase of 
the capital of the debt without a diminution of the interest. The 
history and details of these various operations, and all connected 
questions, may be studied in M. Leroy-Beaulieu's classic treatise 
La Science des Finances. 

In the United States conversion has been as successfully em- 
ployed as redemption. The combined use of these methods has 
wonderfully reduced the interest on the American national debt. 
Thus they pay only 3 per cent instead of 8|- per cent, as was the 
case twenty years ago. 

The preceding explanations show that, for any conversion to be 
effected, the government funds to be operated on must be quoted 
at a preniiu7n. If, in our example, the French 5 per cents had 
been quoted at a discount, say at 95 francs, the State could not 
possibly have given the stockholders the option of choosing 
between repayment at par and a reduction of interest. Repay- 
ment would have been instantly selected, for by that the holders 
would have received more than the actual value of their stock. 
Thus the State would have made a disastrous and egregious 
blunder, for it would be called upon to pay out ^280,000,000 
which, by the way, it did not possess. Conversion also requires 
securities in general to be high, for it is this very height and the 
impossibiHty of investing his money for really good interest, that 
oblige the fundholder to accept the reduced rate of interest which 
the State offers him. 

Thus it is very imprudent for a government, which is offering a 



APPENDIX. 581 

loan for subscription, to issue stock very much below par, say 
French 3 per cents at 60 or 70 francs ; for, as it is extremely dif- 
ficult for such stocks ever to reach par, the probability of the 
State being aible to resort to conversion is very remote indeed. 
The greater part of the French national debt is in this form 
of 3 per cent stock ; thus the reckless action of the government 
will make it extremely difficult for future generations of French- 
men to reduce the interest on the enormous debt bequeathed 
to them. 



INDEX. 



Abundance, 41, 42, and 42 note, 50-52. 

Accidents in industry, 351, 513-515. 

Ad valorem duties, 260. 

Advances, as true shape of capital, 132; on 
bills, by banks, 286, 299, 300 note; ordi- 
nary, 361. 

Age and labor, 123, 124. 

Agricultural colonies, 550. 

Agricultural credit, 306, 307. 

Agricultural labor, 113. 

Agricultural production, 154-157, 323-328. 

Agricultural products, 330-333. 

Agricultural syndicates, 157, 179. 

Agriculture, methods of, and laws as to, 100, 
154-157. 323-333. 343. 347. 446. 447. 455- 
458, 464-467. 530-532- 

Alcoholism, 35, 368, 553. 

Alglave, on sale of brandy by the State, 562. 

Alienation of land, 433, 465, 468. 

Alms, 471. 

Almshouses, 548, 549. 

Altruism, 23. 

Anarchists, 22, 414, 557. 

Annuitants or persons of private means, 471, 
472, 526-528. 

Appreciation of gold, 209, 

Arbitrage , 298, 302. 

Arch, in Algeria, 446. 

Art and luxury, 372, 373. 

Artisan, 470, 473, 475, 476. 

Assi'gnats, 225. 

Association, a mode of organisation of social 
production, 141, 142; physiological, 142; 
forms of, 145-150; for producers and con- 
sumers, 179; for loans, 307, 308; for re- 
ducing expenditure, 376-378 ; for.improving 
condition of working classes, 519; for pro- 
duction, by means of co-operation, 522-525. 

Asylums, 548. 

Autonomous producers, 470, 473-476. 

Average of life, 405. 

Baboeuf, Gracchus, his communism, 410. 
Bagehot, Walter, on growth of capital, 140; 

on banking, 311; on foresight, 384. 
Balance of accounts, 242-246. 



Balance of trade, 239-242. 

Banks, 231, 232, 280; for deposit and discount, 

280; of issue, 280; history of, 280, 281; for 

saving (see Savings Banks) ; land banks 

(see Credit Poticter), 303-306; people's, 

307-309 ; Raififeisen banks, 307. 
Bank of England, 232, 281, 282, 311-314. 
Bank of France, 208, 217, 223, 281, 282, 286, 

309; history and regulations of, 310-312; 

318, 319. 
Bank notes, issuing of, 280, 286-292, 312-319; 

differences of, from credit papers, 287, 288 ; 

differences of, from paper money, 290, 291 ; 

with regard to raising of rate of discount, 

299-303; international, 313. 
Bank rate, 299-303. 
Bank reserve, 285, 313-315, 318-320. 
Bankers, 229, 232, 280. 
Bankers' commission, 245. 
Banking principle, 309, 316-319. 
Banking in the United States, 311, 313, 315, 

319- 

Barter, 182-185; a reversion to, 233, 234. 

Bastiat, on pre-established harmony, 17, 335; 
on human societies, 22; on value, 55-59; 
on "gratuitous" wealth, no; on supply 
and demand, 400; on property and labor, 
430; on value of land and labor, 444; on 
interest, 539. 

Baudrillart, on luxury, 371. 

Bazard, disciple of Saint Simon, 421. 

Beaucaire, fair of, 178. 

Bellamy, his " Looking Backward," 23. 

Benefit societies, 513, 514. 

Bentham, Jeremy, on productivity of capital, 
129; on escheat of unclaimed property to 
the State, 436 note; on interest, 535. 

Bequest, the right of, 432, 433. 

Besse, Father Ludovic de, founder of people's 
banks in France, 308. 

Bills of exchange, 226, 228, 229, 276, 284, 

293- 
Bimetallism, fully discussed and compared 

with monometallism, 198-213. 
Blanc, Louis, his formula for the distribution 

of wealth, 420, 421. 



584 



INDEX. 



Bland act, the, 207. 

Bohm-Bawerk, Dr., on wealth, 41 note; on 
labor and value, 58 note; on factors of 
production, 95 note; on time and labor, 
121 note; on function of capital, 132 note; 
on " lucrative" capital, 133. 

Boisguillebert, on naoney, 89. 

Bounties, 257; advantages of, 269, 270. 

Bourne, Stephen, statistics as to food-supplies, 
262. 

Bradlaugh, Charles, on expropriation of land- 
owners, 468 note. 

Brass, the law of, referred to, 80; discussed, 
494-498; 

Bread, price of, 177, 505; tax on, 513. 

Brentano, on association in production, 148; 
on English working-classes, 511. 

Building societies, 534. 

Butcher's meat, rapid rise in price of, 61; 
price of, affected by middlemen, 177; with 
regard to improvements in transport, 180, 
331- 

Cabet, and his Icaria, 410, 411, 414. 
Cairnes, quoted on exchange and profits, 250; 

on distribution, 428. 
Cameron, Verney, quoted on barter in Africa, 

183. 

Capacities, 421, 423; acquired, 135. 

Capital, an instrument of production, 93 ; its 
part in production, 125-127; supposed pro- 
ductivity of, 127-130; distinguished from 
wealth, 130-135; function of, according to 
Jevons, 131, 132; "productive," 133-135; 
"lucrative," 133-135; fixed and circulating, 
135-138; divisibility and mobility of, 149; 
relation to credit, 277-280; distinguished 
from objects of consumption as property, 
439-441 ; its conflict with labor, 479; direct 
taxation of, 566. 

Carey, on value, 58, 59 ; on progress of culti- 
vation, 457, 458. 

Cartels, 70. 

Catholic (or Christian) school, its principles 
and programme, 24-27; called Christian 
socialism, 25; on laws of inheritance, 437; 
on French land-laws, 466; on State inter- 
ference, 517. 

Cernuschi, on value of precious metals, 217. 

Charity boards, 548. 

Cheapness, as regards competition, 68. 

Check, as an instrument of payment, 283. 

Child labor, 517. 

Clark, on non-material wealth, 41 ; on landed 
property and rate of wages, 464. 

Classes, 26, 27, 470-472. 



Classical school, 16-20 (see Li'..eral school for 
further details) . 

Clearing house, 232, 234. 

Climate, 97. 

Cobden, and the Corn-Laws, 254; on Wages 
Fund, 501. 

Colins, on collectivism, 415; on distinction 
between land and products, 442. 

Collectivism and collectivists, 150, 151; with 
regard to crises, 338; discussed, 414-418; 
as to inheritance, 435; as to capital and 
objects of consumption, 439-441 ; as to cul- 
tivation of land, 452, 453; as to the social- 
izing of instruments of production, 525; 
as to State interference, 557. 

Colonice, 147. 

Combination, right of, 509. 

Communism and communists, 170; discussion 
of, 410-414, 421. 

Cornpensatio, 228, 230, 232, 299. 

Competition, system of, 64-71 ; maintains 
equilibrium in professions and trades, 166; 
foreign, 177, 255, 256, 261, 265, 488; as 
regards State industries, 562. 

Compound interest, law of, 128. 

Comte, Auguste, on political economy and 
sociology, 4; on natural laws in political 
economy, 11; on optimism, 18. 

Condillac, on limitation of wants, 51 and 
note ; on utility as cause of value, 54. 

Conditional quittances, 259. 

Cottfuszo, 228, 230, 462. 

Considerant, on consumption in common, 

377- 

Consolidation of public debt, 576. 

Consumers' co-operative societies (see Co-op- 
erative Societies of Consumers). 

Consumption, relation to production, 334-336; 
modes of, 359, 360; discussion of, 361-397. 

Conversion of public debt, 576, 578-581. 

Co-operation, in production, 147, 148, and 148 
note; simple, 158; complex, 158; for the 
working of large businesses, 441, 480, 481; 
methods of, discussed, 519-525. 

Co-operative loan societies, 308. 

Co-operative societies of consumers, 179, 386; 
discussion of, 388, 389, 524, 525. 

Co-operative societies of producers, 148, 389, 
519; discussion of, 522-525. 

Corn Laws, 254. 

Cost of production, as regards value, 65-68; 
raised by protective duties, 265; lowered 
by bounty system, 269; as regards profits, 
482, 483; as regards manual labor and 
wages, 495-498. 

Countervailing duties, 271. 



INDEX. 585 



Courcelle-Seneuil, on saving as a form of 
labor, 139. 

Cournot, on law of supply and demand, 63; 
on monopoly, 70; on measure of value, 87. 

" Crashes," 339, ^ 

Creches, 519. 

Credit, a mode of organization of social pro- 
duction, 141; in physiology, 143, 144; as 
regards money, 228-233; relation to capi- 
tal, 277-280; agricultural, 306, 307. 

Credit Fonder (land banks or landed credit) , 

303-305, 397- 

Credit Fonder de France, 305, 306. 

Credit operations, 273-275. 

Credit papers, 275-277. 

Crises, 336-344; periodicity of, 336, 337; 
caused by glut or scarcity of commodities, 
337-339; caused by glut or dearth of capi- 
tal, 339, 340; caused by excess or dearth 
of coin, 340, 341 ; monetary, 341 ; 544. 

Currency principle as to the issuing of notes, 
309, 313-315- 

Currency questions {sec passim, Money, Pre- 
cious Metals, Monometallism, Bimetal- 
lism) . 

Customs duties, 268, 563. 

Customs returns, 237, 238, 241, 242. 

Darwinism, 128, 402 and note. 

Debt (see Public Debt). 

Deductive method, 4 et seq. 

Deposits, 462, 571. 

Deposits, in ordinary banking, 280-287, 289, 
310,314; in savings banks, 386-388. 

Depreciation of value of money, 504, 505. 

Desiderability, synonym of value, 44. 

Difificulty of attainment, as cause of value, 55. 

Discount, defined, 275; in banking, 280, 281, 
283-286, 310, 312, 314; raising of rate of 
(see Rate of Discount) . 

Discovery, 112, 113. 

Distance, 180. 

Distribution, 398 et seq.; problem of, 406; 
formulae of, 418-429. 

Distributive justice, 268, 401-410, 425, 428. 

Dividends, 471, 485, 486. 

Division of labor, as mode of organization 
of social production, 141, 142; physiologi- 
cal, 142, 143; forms of, 158-161; conditions 
for, 160, 161; advantages of, 161, 162; 
disadvantages of, 163, 164; its application 
to society, 166-168. 

Donation with reservation of usufruct, 434. 

Double uses of machinery, 346. 

Dowry system, 467. 

" Drawbacks," 259. 



Dunbar, Professor, on "Deposits as Cur- 
rency," 300 note. 
Duplication of prices, 227. 
Dupuit, on final utility, 54. 

Economic schools, the, 15-30. 

Economy, political (see Political Economy) . 

Elberfeld Poor Law System, 551, 552 and 
note. 

Electricity, 107, 153, 327. 

Ely, Richard, on Labor Movement in United 
States, 412. 

Employer (or Master), 148, 470, 477-481; 
wages of labor of, 485. 

Employers' liability, 514-516. 

Endorsement, 288. 

Enfantin (disciple of Saint Simon), 421. 

Entails, 465. 

Environment, 8, 94, 96-99, 141. 

Espinas, on natural laws in political economy, 
19; on association, 145; on division of 
labor, 164. 

Exchange, in relation to value, 3, 72-74; 
ratio of, 72; as mode of organization of 
social production, 141, 142; physiological, 
143 ; its part in production, 169-172 ; advan- 
tages of, 172-174; means of facilitating, 
174; its change from barter to sale and 
purchase, 182-185; instruments of, 186-188; 
rise in rate of (see Rate of Exchange) ; bills 
of (see Bills of Exchange) ; international (see 
International Trade) ; benefits of, 250; 
relation to credit, 272-274; unfavorable, 
294, 295; favorable, 294, 295. 

Expenditure, 360-378; discussion of, 361-364; 
relation to production, 364-366; aims of, 
366-369; of foreigners, 373-376; public, 

554-559- 
Experiment in economics, 7, 8. 
Exports, 237-252, 257, 258. 
Expropriation of negligent landowners, 468. 
" Extra Pence," 570. 
Extractive industry, 113, 328. 

Fair trade, 270. 
Family estates, 437. 
Family life, 377. 

Family proprietorship of land, 447. 
" Family Stock," 26. 
Feudal system, 448, 560. 
Five-franc piece, 199-201, 204-206, 208. 
Forced currency, 288, 289, 291. 
Foresight, 120, 137, 384, 514. 
Four ages, the, in relation to man's knowl- 
edge of metals, 187. 
Fourier, Charles, his system, 25 and note; on 



586 



INDEX. 



attractive labor, ii8; on association, 145; 
on division of labor, 161; on "short sit- 
tings," 163; on his phalanstery, 351, 377, 
411, 413; on communism, 411; on inheri- 
tance, 435. 

Foville, De, on economy in large production, 
152; on income of French agricultural la- 
borers, 504; table of successive increases 
of French Budget, 554. 

Foxwell, on monopolies, 70 and note; on bi- 
metallism, 202 note; on interest, 542. 

Free trade, with regard to method, 8 ; discus- 
sion of question of, 248-256; dangers of, 
260-264; In relation to wages, 488. 

Free trade in land, 467, 468. 

Free will, 11-15. 

Freedom of contract, 517, 518. 

Freedom of disposal of property by will, 436- 
438. 

Freehold landed property, 449. 

Geddes, Patrick, on fertility of species, 323. 

General expenses in business, reduced by 
large production, 152. 

General glut, 342-344. 

General trade, 236. 

Geographical configuration, 98. 

Geological constitution of soil, 98. 

George, Henry, on unearned Increment, 459; 
"one-tax" system, 463; his writings and 
success, 465. 

Germinal, law of, on French currency sys- 
tem, 199, 202. 

Giffen, on "invisible exports," 243 note; on 
machinery, 352 note; on land rent in Eng- 
land, 459 note. 

Gift, the right of, 432, 433. 

Glut, of commodities, 337; of capital, 339; 
general (see General Glut). 

Godin, on State inheritance, 436 note; his 
plan of profit-sharing, 524. 

" Goods," 42. 

Goods for re-exportation, 236, 259, 265. 

Goods In transit, 236. 

Goschen, G. J., quoted on amount of metallic 
money in circulation In England, 221 note; 
on The Foreign Exchanges, 246; on 
banks, 311. 

Gossen, on final utility, 54 and note. 

Gresham's law, 194-198, 203, 204. 

Gronlund, on socialist Ideal In his " Co- 
operative Commonwealth," 23, 415. 

Ground, the, 94, 96, 99-101, 99 note. 

Ground rent, 455-461. 

Gunston, his optimistic views as to the Law 
of Brass, 498. 



Heredity, 12, 37, 435. 

Historical (or Realist) school, its method and 
principles, 27-30. 

Hoarding, 140, 195, 196, 360, 379. 

Hom.es {hospices), 548. 

Homestead laws, 306, 468. 

Hospitals, 548. 

Houses, building of, 348; number of, ir 
Paris, 407, 408. 

House rent, 532-535. 

Hunting, 97; the decadence of, 328; depend- 
ence on, prior to landed property, 446; sup- 
port from, requires huge areas of land, 451. 

Icaria, 411, 414. 

Icarians, 351. 

" Idleness," 403, 526-528. 

Import-duties, 259, 260, 264-267. 

Imports, 237-252, 258-261. 

Income-tax, 407, 566-568. 

Indifference, law of, 65. 

Indigent, the, 471, 472, 543-553- 

Individualism, 24, 424, 556. 

Inductive method, 5. 

Inequality, 32, 33, 401-406. 

Inflationists, 237. 

Ingots, an early form of money, 188, 189; 
raw, difference of value of from coined, 
190-192. 

Inheritance, 429, 434-438, 465, 527. 

Insurance, 484, 514-516. 

Intensive cultivation, 100, 156, 161, 451. 

Interest, relation to saving, 385, 386, 471, 481, 
484. 535-542; legitimacy of, 535-537! Per- 
petuity of, 539 ; rate of (see Rate of Interest) . 

International bank-note, 313. 

International trade, 236-271; as barter, 237- 
240; advantages of, 246-250; harmful to 
certain interests, 250-252. 

Invention, 112, 113. 

Investing, 355, 360; discussion of, 390-397. 

Irredeemable stock, 573. 

Jevons, Stanley, on method in science, 6; on 
periodicity of crises, 14, 336, 337; on limi- 
tation of wants, 51 ; on final utility, 54 and 
note; on utility as cause of value, 54; on 
law of indifference, 65; on functions of 
precious metals, 75; on fluctuations of 
prices, 88; on pain and labor, 120; on 
true function of capital, 131, 132; his defini- 
tion of coined money, 190; on process and 
factors of production, 424; on productivity 
of labor, 499, 500. 

Joint stock companies, 148-150, 153, 397. 

Juglard, on commercial crises, 337. 



INDEX. 



587 



Kant, quoted on natural laws, 13; quoted on a 
good will, 425; on first precept of morality, 
480. 

Keary, C. F., on coins, 189 note. 

King, Gregory, his law, 64. 

Kitchen-gardening, 100, 156, 327. 

Knights of Labor, 511. 

Labor, as cause of value, 55-60, 426; as meas- 
ure of value, 80-82 ; as agent of production, 
93, 94; its part in production, 108-110; its 
method, in; productive, 113-118; relation 
to pain, 118-121; "attractive," 118; rela- 
tion to time, 1 21-124; one factor of capital, 
126, 439; compulsory association for, 146; 
liberty of, 166; amount of, diminished by 
progress in production, 348-350; relation 
to distribution, 423-427; with regard to 
private property, 439, 441-444; conflict 
with capital, 479; manual, 494, 495, 508; 
productivity of, 499-501 ; relation to wages- 
fund, 501-503; knights of, 511; unskilled, 
511; the right to, 516, 517, 544; limitation 
of hours of, 517-519; field, 550. 

Labor bureaus, 509, 558. 

Labor exchanges, 507. 

Labor legislation, 29, 513-519. 

Labor notes, 75. 

Labor party, 499, 512, 513. 

Laisser /aire, 17, 28, 253, 316, 504. 

Land, 93; formerly used for "nature," 96; 
not identical with " ground," 99; as regards 
agriculture (see Agriculture /ajj/;w) ; equal 
division of, 419, 420; distinguished from 
products, 441-445; historical evolution of 
property in, 445-450; periodical divisions 
of, 446, 447; mobilization of, 449; legiti- 
macy of property in, 451-455; "living," 
454; "dead," 454; rent of (see Rent) ; un- 
earned increment of (see Unearned Incre- 
ment) ; temporary concessions of, 461-463 ; 
nationalization of, 461-464, 534, 535, 561; 
divisibility of, 466; transmissibility of, 466; 
free trade in, 467,468. 

Land banks, 303-305 (see Credit Fonder). 

Land laws, 454, 461-469. 

" Landlord," the, 532. 

Landowners, number of, in France, 466; not 
a distinct class, 471, 472, 530, 531. 

Land tay, 569. 

Large businesses, 150, 152. 

Large farming, 154-157. 

Large production, advantages and disadvan- 
tages of, 150-154; economy resulting from, 
151, 152; in agriculture, 154-157, 453; as 
regards isolated production, 474, 475. 



Large property, 157, 465, 468. 

Laroche Joubert, profit-sharing in his manu- 
factory, 520, note. 

Lassalle, Ferdinand, as coUectivist, 415; on 
the law of brass, 495, 498; on producers' 
co-operative societies, 523. 

Latifundia, 467, 468. 

Latin union, on the currency question, 204, 
206, 207. 

Laveleye, Emile de, quoted on positive laws 
in political economy, 28 ; on advantages of 
exchange, 173, 174; on crises, 336, 337, 
341; on luxury, 370, 371; on communistic 
societies, 411, 412; on distinction between 
land and products, 442; on the Russian 
mir, 447; on the Bulgarian Zadrugas, 
447, 448. 

Law, his paper money, 219; his bank, 281. 

Lawrence, on United States' customs tar- 
iff, 267-268. 

Leases, of land in farms, 529-532. 

Legal tender, defined, 190; 199, 205; distin- 
guished from forced currency, 288, 289. 

Le Claire, founder of profit-sharing, 520. 

Le Play, his school, 26 and note; on " family 
stock," 26; on environment, 97 ; on home- 
stead laws, 306 note ; on division of landed 
property in France, 466. 

Le Trosne, on exchange, 171. 

Leroy-Beaulieu, Paul, on division of prop- 
erty, 9; doctrines of liberal school, 16, 17; 
on double uses of machinery, 346; on lux- 
ury, 371 ; on poverty and disease, 405 ; on 
millionnaires in France, 407 ; on collectivism, 
416; on profit-sharing, 520; on landowners 
and farmers, 530; on fall of rate of interest, 
542; on functions of the State, 556; on 
French public debt, 572; on conversion of 
French public debt, 580. 

Letting, the right of, 431. 

Liberal school, the (or classical), principles 
of, 16-20; on the social problem, 398, 399; 
on laws of inheritance, 437, 438; on free 
trade in land, 467 ; on State interference, 517, 
555) 556; on profit-sharing, 521; on co- 
operation, 525; on legal relief, 545-547. 

Liberal professions, the, 115, 470. 

Liberty of banking, 313, 316. 

"Liberty of coinage," 193, 194. 

Liberty of labor, 166-168. 

Loans, as regards credit, 272-278, 305; with 
regard to interest, 535-538; public, 572- 

575- 
Lock-out, 509, 543, 544. 
Loua, on mortality of classes in Paris, 405. 
Luxury, 369-373; public, 373. 



588 



INDEX. 



Machinery, 105-107; a factor of progress of 
productions and its drawbacks, 345-356. 

Macleod, H. D., on money, 90; on Gresham's 
law, 194 note; on credit papers as wealth, 
278. 

Mallock, W. H., quoted on social inequality, 

33- 

Malthus, his laws, 6, 320-323; his theories 
referred to, 128, 451 note ; anticipates 
Ricardo in teaching theory of rent, 455 
note; his principles, with regard to the 
wages-fund, 502. 

Mancipatio, 188, 445. 

Manufactured products, 330-333. 

Manufacturing industries, 113, 329. 

Markets, law of, 342-344. 

Marshall, Professor, on distribution of labor, 
168 note. . 

Marx, Karl, his works on socialism, 23; on 
theories of value, 55, 56, 59; on measures 
of values, 80, 81 ; his definition of capital, 
138; collectivism, 415, 416; his formula for 
distribution of wealth, 426, 427 ; on capital 
and labor, 439; on autonomous producers, 

474- 

Master, the (or Employer), 148, 470, 477-481. 

Mathematical method in economics, 7, 54, 55. 

Maximum of issue of bank-notes, 315, 318, 319. 

Maximum of landed estates, 468. 

Maximum price, 513. 

Maximum wage, 513. 

Mazzola, on " non-material " wealth, 41 ; on 
taxation, 560. 

Menger, on final utility, 54. 

Mercantile system, 89, 235. 

Merchandise, 168. 

Metayage, 491, 530, 531. 

Middlemen, 174, 176-178, 389. 

Mill, James, on unearned increment, 463. 

Mill, John Stuart, quoted on prediction in 
political economy, 15; on government by 
classes, 26; on supply and demand, 63; on 
one argument of protectionists, 268; on 
future of production, 357; on spendthrifts, 
364; quoted on abstention from consuming, 
394; on inequality of wealth, 406; on un- 
earned increment, 463; on profits and cost 
of production, 483 note; on wages-fund 
and population, 502; on an "idle" class, 
527. 528. 

Minimum of landed estates, 468. 

Minimum wage, 512. 

Mining concessions, to be temporary, 463. 

Mints, 193, 203-206. 

Mir, the Russian, 419, 447. 

Mobilization of landed property, 304, 449. 



Molinari, De, on laisser /aire, 17; on joint- 
stock companies, 149; on autonomous pro- 
duction, 474; proposes labor exchanges, 
507- 

Money, relation to value, 46; as measure of 
values, 75; relation to price, 82; variations 
in value of, 83-88 ; as wealth, 88-92 ; powers 
of, 90-92; "hard," 91, 237, 379; sterility 
of, 128; as capital, 135; relation to forma- 
tion of capital, 139, 140; hoarding of, 140, 
195; as "a common third," 174, 182-185; 
coined, development of, 188-190; legal, 190, 
198; right, 191; heavy, 191; light, 192; 
clipping of, 192; token, 193, 194, 199, 204, 
224; payment abroad of, 196; sale by 
weight of, 196; relation to monometallism 
and bimetallism, 198-213; metallic, com- 
pared with paper money, 215-222; siege, 
219; metallic, amount of in circulation, 
221 and note; replacement of by credit 
methods, 228-233; its part in international 
trade, 238-242; artificial scarcity of, 303; 
depreciation of, 332, 504; excess or dearth 
of, as cause of crises, 340, 341; relation to 
expenditure, 362; relation to expenditure 
of foreigners, 373-376; relation to saving, 
379-381 ; relation to investing, 390-394. 

Monometallism, 198, 199; discussion of, 207- 
211. 

Monopoly, in production, 68-71; of banking, 
309-3i3> 318, 319; of landed property, 455, 
464; as yielding State revenues, 561-563. 

Mont-de-Piete, 516. 

Moral restraint, 321. 

Mortgage, 273, 304, 305. 

Mortmain, 466. 

Motive forces, 96, 103-107. 

Movable goods, 441, 445, 453. 

Mutual loan societies, 307. 

National workshops, 517. 

Nationalization of the land, various systems 
of, 461-464; 534, 535, 561. 

Natural laws in political economy, 9-16; 
views of liberal school on, 16-20; views of 
socialist school on, 22; views of Catholic 
school on, 24, 25 ; views of historical school 
on, 28-30. 

Natural price, 495. 

Natural selection, 403, 546. 

Natural wages, 493. 

Natural wealth, 109, no. 

Nature, 95; defined, 96; its mode of collabo- 
rating with man for production, 96 et seq. 

Net product, 482, 483. 

Nijni-Novgorod, fair of, 178. 



INDEX. 



589 



Nordhoff, on communistic societies, 412, 413. 
Note to order, 276. 
Novatio, 228. 

Occupation, as origin of rights of property, 

430, 431- 
Octrois, 570. 
Optimism, 18, 351-355, 442, 443, 459, 486, 499, 

552. 
Owen, Robert, his Malthusian practices, 321 

note; his works and projects, 410, 411; on 

size of communistic societies, 413. 

Paepe, Cesar de, inventor of name Collectiv- 
ism, 414 note. 

Pain, a factor of labor, 118-121; necessary 
for saving, 383, 384. 

Palgrave, R. H. Inglis, article on " Abun- 
dance" .in his Dictio7iary of Political 
EcotioTny, 42 note; article on " Banking" 
in his Dictionary of Political Econo?ity, 
281 note; his paper on '* Note-circulation" 
referred to, 300 note. 

Palmstruch, inventor of bank-notes, 287. 

Pantaleoni, on hypothesis in political econ- 
omy, 7; on " non-material" wealth, 41; on 
distribution of wealth in Italy, 407; on the 
determination of the rate of wages, 493, 494. 

Paper money, in relation to Gresham's law, 
197; representative, 214; fiduciary, 215; 
conventional, 215; differences of value of, 
from value of metallic money, 216-219; 
antiquity of, 219; relation to wealth, 219- 
224; advantages of, to a country, 222; 
advantages of, to a government, 223; dan- 
gers of, 224; signs of excess of, 225-227; 
replacement of, by credit methods, 228-232; 
compared with bank-notes, 290-292 ; reason 
of trade in, 295 ; depreciation of, 297-298. 

Par, rate of exchange at, 294; government 
loans at, 573. 

Partnership, for production and not for dis- 
tribution, 147; various forms of, 490, 491, 

519. 530, 531- 
Partners, sleeping, 523. 
Passy, Hippolyte, on small farming, 155. 
Pauperism, 403-405, 471, 472, 543-553. 
Peasant proprietors, 464, 465, 473, 475, 476, 

530- 

Pecqueur, a coUectivist, 415. 

People's banks, 307-309. 

Periodicity of crises, 14, 336, 337. 

Perpetuity of property, 434, 435. 

Phalanstery, 164, 351, 377, 411, 413. 

Physiocrats, on natural laws in political econ- 
omy, 11; on productive labors, 113; on 



exchange and wealth, 170, 171; on laisser 
faire, 253. 

Political economy, object of, 1-4; definition 
of, i; etymology of, 2; relation to other 
sciences, 3; method in, 4-9; natural laws 
in, 9-15; various schools of, 15-30- 

Poor laws, 549. 

Poor rate, 546-549. 

Precious metals, decadence of, 61, 234, 235; 
as measure of value, 75-78; as instrument 
of exchange, 186; advantages of, 187, 188; 
choice of, as legal money, 198; legal ratio 
(15^) between, in France, 200; relation to 
monometallism and bimetallism, 198-213; 
legal ratio between, in United States, 207 ; 
variations in quantity of, 210; industrial 
use of, 212, 238; annual production of, 222. 

Prediction, 12-16. 

Premium on gold, 225; on foreign paper, 293. 

Prescription, as regards rights of property, 431. 

Price and prices, as regards value, 46, 47 ; as 
regards competition, 64-69, 72; definition 
and discussion of, 82-84, 86-88; rise in, 
consequent on excess of paper money, 226, 
227; in international trade, 239, 240; in- 
fluenced by protection, 265-269; affected 
by law of decreasing returns, 330-332; dur- 
ing crises, 338, 339; natural, 495; general 
rise in, 504, 505, 509. 

Primogeniture, 437, 465. 

Producers' co-operative societies (see Co-op- 
erative Societies of Producers). 

Production, 93-358 passim ; individual, 93- 
95; social, 141; insufficiency in, 320; ex- 
cess in, 334; progress in, 345; future of, 
356; large (see Large Production); cost of 
(see Cost of Production) . 

Professional beggars, 553. 

Professional risk, theory of, 515. 

Profits, as regards competition, 69, 470; legiti- 
macy of, 477-481 ; laws of and relation to 
wages, 482-488; as regards profit-sharing, 
520, 521 ; rate of (see Rate of Profits). 

Profit-sharing, 147; methods and discussion 
of, 519-522, 524. 

" Progress of cultivation," 456-458. 

Property, private, 350, 351 ; rights of, 430- 
438; extent of, 438-445; in land, 442-469; 
large (see Large Property) ; small (see 
Small Property). 

Protection, 248-250, 252-271; history of, 253, 
254; system of, 256-260; dangers feared by 
supporters of, 260-264; disadvantages of, 
264-269; moderate forms of, 270, 271. 

Proudhon, his works on socialism, 23; on 
wealth and value, 42; quoted on time as 



590 



INDEX. 



measure of value of labor, 426; on le- 
gitimacy of interest, 539; on " gratuitous" 
credit, 542. 

Public debt, 570-581; registered, 571. 

Public expenditure, 554-559. 

Public health, 559. 

Public kitchens, 378. 

Public loans, 397, 572-575 ; " classing " of, 574. 

Public luxury, 373. 

Public revenue, 559-570. 

Public relief, 547-552, 559. 

Public servants, 471. 

Public services, 153. 

Quesnay, on natural laws, 11; on exchange, 
171. 

Raiffeisen banks, 307. 

Railways, as means of transport, 181, 182; 
their costliness as regards life, 351 ; owned 
by the State, 453-455, 562, 563. 

Rate of discount, 299-303; reasons for the 
raising of, 299, 300; results of the raising 
of, 302, 303; 311. 

Rate of exchange, rise in, resulting from 
excess of paper money, 226, 227; explana- 
tion and discussion of, 292-298. 

Rate of interest, 340, 486; theory of progres- 
sive fall of, discussed, 539-542. 

Rate of profits, 482-486; its relation to the 
rate of wages, 486-488. 

Rate of wages, its relation to the rate of prof- 
its, 486-488; the laws regulating, 492-494; 
theories with regard to, 494-503 ; discussion 
of rise in, 503-510. 

Ratio of exchange, 72. 

Ratio, legal, between precious metals in 
France, 200; in United States, 207. 

Raw material, 94, loi, 102, 113. 

Realist (or historical) school, 27-30. 

Reciprocity, 270. 

Redemption of public debt, 576-578. 

Registered debt in France, 571. 

Registration duties, 564. 

Relief, the right to, 543-547 ; public, the prin- 
ciples and practice of the organization of, 
547-552; outdoor, 548, 551, 552. 

Rent of land, discussion of theories of, 455- 
461; 471; in relation to various systems of 
landowning and tenure, 529-532. 

Rent of houses, 471, 532-535. 

Res/jtngtbz'les, 273. 

Returns, decreasing or non-proportionate, law 
of, as applied to agriculture, 323-328; rela- 
tion to other industries, 328-333; relation 
to Ricardo's theory of rent, 457. 



Ricardo, his use of deductive method, 4-6; 
on labor and value, 57, 58; his theory of 
rent, 455-458; on rate of profits and of 
wages, 486 and note ; relation to law 
of brass, 496; on English sinking fund, 
577 note. 

Rich, the, 403, 407, 408. 

Roads, as means of transport, 181, 182. 

Robin, on the modes of administering relief, 

550- 
Rochdale pioneers, 388, 524 note. 
Roscher, his treatise on political economy, 27; 

on sumptuary laws, 370. 
Running account, 286. 

Saint Simon, his system of distribution of 
wealth, 421-423; on abolition of inheritance, 

435- 
Sale, the right of, 431, 432. 
Sale and purchase, 174, 182-185. 
Sale for cash on delivery, 228. 
Sale for cash or payment at a future date, 228, 

275- 

Saving, discussed, 139, 140, 379-389; causing 
glut of capital, 339; 360; 367; distinguished 
from investing, 379, 380; conditions neces- 
sary for, 382-386; institutions for, 386-389; 
automatic, 388. 

Savings banks, 386-388. 

Say, J. B., on wealth and value, 41, 42; on 
utility as cause of value, 54 ; on his law of 
markets, 342, 343 ; on harmful expenditure, 
368; on law of brass, 496. 

Scarcity, as a cause of value, 55. 

Schaffle, on socialist ideal, 23; on analogies 
between social and biological laws, 144. 

Schmoller, on division of labor, 159 and note, 
165; on traders, 175. 

Schulze Delitzsch, people's banks in Ger- 
many, 308. 

Sea-carriage, 181. 

Services, as regards non-material wealth, 40, 
41 ; as regards distribution, 399-401, 403. 

Shakers, society of, 413. 

Shopkeeper, 175, 473-476. 

Silver Bill, in United States, 208. 

Sinking fund, 577 and note. 

Small farming, its present and future, 154-157, 

474, 475- 

Small industry, 107 note, 154, 474-476. 

Small property, 157, 466-468. 

Smith, Adam, on definition of political econ- 
omy, 2; eclipses physiocrats, 11; on labor 
and value, 80; quoted on labor and value, 
81; on productive labor, 114; on fixed and 
circulating capital, 135, 136; on division of 



INDEX. 



591 



labor, 159, 163 note; on exchange, 173; 
on paper money and wealth, 220-222 ; men- 
tioned with regard to laisser /aire, 253. 

Socialist school, 21-24; on inheritance, 434, 
435. 437; oil co-operation, 525; on progres- 
sive taxation, 567. 

Socialism, Christian, 25 (also see Catholic 
School). 

Socialism, Christian and not Catholic, 26 and 
note. 

Socialism of the Chair (also see Historical 
School), 27; on State interference, 517. 

Socialism, scientific, 21. 

Socialism, State (also see Historical School), 
29, 516, 556, 561. 

Social question, 398 et se'q. ; various solutions 
of, 410-429. 

Social solidarity, 27, 29, 165, 424. 

Special trade, 236, 241. 

Specific duties, 260. 

Spencer, Herbert, as sociologist, 4; on natural 
laws in political economy, 11; quoted for 
analogies between sociological and biologi- 
cal laws, 143, 144; quoted on interdepen- 
dence of trades and manufactures, 165; 
referred to on law of population, 323 ; quoted 
on inequality, 402; on distinction between 
land and products, 442; quoted on evolu- 
tion of landed property, 445; on conquest 
and landed property, 448; on future of 
landed property, 450. 

Stamp duties, 564. 

State functions, 22, 23, 555-559. 

State interference, 28-30, 429, 506, 507, 512- 
519, 556-558. 

State lands, 560, 561. 

State monopolies and industries, 71, 561-563. 

State property, 453, 454. 

State railways, 453, 562. 

State socialism (see Socialism, State). 

Statistics, in economics, 9, 12. 

Steam-engine, the, 105-107, 356, 475. 

Strikes, 506; discussed, 509, 510. 

Succession ab intestato, 435-438. 

Succession duties, 469, 564. 

Sumner, Graham, on occupation, 430, 431. 

Sumptuary laws, 370. 

Superannuation fund, 514, 516, 524. 

Superannuation oftice, 516. 

Supply and demand, law of, stated and ex- 
plained, 62-64; as regards division of 
labor in society, 166, 167; 335; as regards 
wages, 507, 508. 

Surplus value (see Unearned Increment). 

Taxation, 562-570. 



Taxes, at a fixed rate, 570; at a proportional 

rate, 570; direct, 564-570; indirect, 563; on 
'doors and windows, 569; on income, 566- 

568 ; on land, 569 ; on personal and movable 

property, 569; on trade licenses, 569; on 

stocks, 569. 
Tenure, 448. 
"Third commodity" (common third), 174, 

186, 187. 
" Three-Eights," the, 122. 
Thiinen, Von, on natural wages, 493. 
Time, a factor of labor, 121-124; relation to 

remuneration of labor, 426. 
Tools, 94, 103. 

Torrens act, 304, 449, 450, 468. 
Trade, 174, 179; general. 236; international 

(see International Trade) ; special, 236-241. 
Trade unions, 510-512. 
Traders, 174; history of, 175; advantages of, 

176; disadvantages of, 176-178; in social 

evolution, 233. 
Trades, 158-161 ; distribution of, 166, 167. 
Transference, law of, 267. 
Transfers of items, 232. 
Transport, 102, 114, 174, 178-182, 187, 243. 
Treasury bills, 572, 577. 
Treaties of commerce, 254. 
Trusts, 70, 329. 

Tufferd, on distribution of labor, 168. 
Turgot, removes restrictions on labor, 167; 

states terms of law of brass, 496; on interest, 

536; on fall of rate of interest, 541. 

"Uncovered" (lying), 286. 

Unearned increment, 444, 459, 460-463, 529. 

" Union," the, 551. 

Union, Latin (see Latin Union). 

Urban population, growth of, 533. 

Usury, 535. 

Utility, as cause of value, 54, 59. 

Utopia, 410, 411. 

Utopians, 20, 21. 

Vagrants and vagabonds, 544, 550, 553 ; Frencli 
law on, 550, 551. 

Value, basis of political economy, 3 ; relation 
to wealth, 41-43; discussion of, 44-47; sub- 
jective and objective, 44 note, 45; causes 
and theories of, 47-60; variations and oscil- 
lations in, 60-64 ; influenced by competition, 
64-71 ; relation to cost of production, 65-68; 
relation to exchange, 72-74; measure of, 
74-88; tables of variations in, 88; normal, 

495- 
Values, commission on, 245. 
Vico, his circles, 233. 



592 



INDEX. 



Victuals, 131. 

Vidal, a coUectivist, 415. 

Wages, 471, 489; of employer's labor, 485; 
of superintendence, 486 ; Rate of (see Rate of 
Wages) ; contract of, 489-492 ; minimum of, 
494, 497, 498; theories of, 494-503; rise in, 
503-506; fixed minimum of, 512; fixed max- 
imum of, 513. 

Wages-earners, 471, 472, 489, 506, 513-525. 

Wages fund, 354, 355, 501, 503. 

Wages system, 147, 490, 492. 

Walker, General Francis A., denies depreci- 
ation of government securities in United 
States in times of crisis, 315 note; his 
theory of the productivity of labor, 499. 

Wallace, A. R., on distinction between land 
and products, 442. 

Walras, on hj^potheses in political economy, 7; 
on final utility, 54; on scarcity as cause of 
value, 55; on capital, 133; on distinction 
between land and products, 442. 

Wants of man, the, 3, 34-37, 47-54. 357-358, 
497. 498- 



Wars, present or prospective, a cause of in- 
creased public expenditure, 555. 

Wealth, as object of political economy, 1-3; 
double meaning of, 31, 32; motives for 
seeking, 32, 33; definition of, 38; question 
of materiality of, 40, 41 ; relation to value, 
41-43; relation to metallic money, 88-92; 
natural, 109, no; gratuitous, no; the first, 
127; distinguished from capital, 130-135; 
relation to exchange, 169, 170; relation to 
paper money, 220; relation to credit, 273- 
275, 278; relation to increase of population, 
320; insufficiency of, 357, 406, 408; employ- 
ments of, 359, 360; inequality of, 401-406; 
active, 415; formulae for division of, 418 
et seg. 

Wirth, Max, on crises, 337 note; on con- 
quest and wages, 489 note. 

Women, limitation of hours of labor of, 517, 

519- 
Workhouse, the, 550. 
Wuarin, on taxation, 555. 

Zadrugas, the, of Bulgaria, 447, 



